The MLO Mentor is a continuous series covering best compliance practices for mortgage lenders (MLOs). This article looks at programs related to abuse, theft and fraud Equity Mortgages (HECM). Register of the first Tuesday 8h NMLS CE to Renew Your MLO License in California and Learn More About Fraud Prevention and Abuse at Your Practice
Mortgage conversion mortgages used to deceive older citizens
In 2009, the Federal Bureau of Investigation (FBI) and the US Department of Housing and Urban Development The Office of the Inspector General (HUD-OIG) has published a report that appears to be widespread Equity Mortgage Conversion Loan (HECM) abuses. The FBI and HUD-OIG found that lenders, mortgage companies, investors, loan advisors, appraisers, builders, developers and real estate agents were using HECMs to defraud senior citizens.
Investigators found that the scammers used local churches, investment seminars and television, radio, billboards and postage ads to target the elderly. Protect your customers with some common HECM scams.
Stock theft plans
The number one abuse identified by the researchers was theft of shares plan. Scammers in stock theft programs have identified foreclosed, distressed, or abandoned properties (or buyers) using information contained in county records. They then bought the property using straw buyers. Straw buyers would commit fraud during the occupation by stating their intentions to use the property as their main residence.
Scammers then recruited seniors to “buy” real estate from straw buyers by transferring title deeds to seniors without exchanging money. After the seniors completed the 60-day occupation period, the scammers arranged for the seniors to obtain HECMS, using inflated estimates. The seniors were then encouraged to raise a large lump sum of own funds. The scammers then took the equity and fled.
Foreclosure rescue plans
In foreclosure rescue scammers target seniors who are at risk of losing their homes due to foreclosure. Scammers offer reverse mortgage schemes with the promise that these schemes will prevent foreclosure.
Once seniors are ready to enter into a loan agreement, fraudsters inform seniors that they are not eligible for a reverse mortgage. Scammers, on the other hand, persuade seniors to take a different type of loan offered by the scammer.
The scammers then locate a straw buyer, order fraudulent home repairs, complete an inflated appraisal, and obtain a mortgage that transfers the property away from the elderly. Then scammers pocket the same funds. The elderly are often notified by the new owner either to buy the house again at a higher price or to find alternative living arrangements.
Some seniors are recruited through ads for “free homes” and are willing to participate in these programs. Ratings are generally inflated. The elderly can live in homes as long as they pay taxes, insurance and maintenance.
Lenders do not realize that there is a problem until the elderly die or leave. Currently, any lender losses arising from the false equity are transferred by the lenders to the FHA, which pays the deficit.
Investment schemes are similar to stock theft schemes and are used by fraudsters to steal HECM loan proceeds under the guise of investing in income, real estate or other investment product. The perpetrators of this scheme are often associated with the principal of the HECM loan and sell the investment product to the victim.
Remember that the mortgage broker and the lender involved in a reverse mortgage are prohibited:
- participation or otherwise affiliation with any party involved in or associated with any other economic or insurance activity;
- acceptance of any incentive to provide the borrower with any other financial or insurance product; or
- Directly or indirectly requiring the purchase of any other financial or insurance product as a condition for the settlement or realization of the reverse mortgage. [12 USC §1715z-20(n)-(o)]
Purchase and guarantee
This scam is committed directly by the senior borrower in relation to a HECM purchase loan. In this scam, the borrower buys a more affordable home with the intention of no longer making payments on the previous mortgage.
Additional programs related to reverse mortgages include sales of unsuitable financial products, broker conversion, false statement of borrower’s domicile, age and ability, identity theft, inflated securities, forgery of mortgages / mortgages, underwriting documents. loans negotiated by children or other third parties without the consent of the senior borrower, forged power of attorney, settlement fraud and fraudulent charges for otherwise free reverse mortgage information.
When this report was released in 2009, the growing number of seniors falling victim to these scams – which collectively valued more than $ 4 trillion in domestic equity – was associated with program vulnerabilities, such as lack of income credit or employment qualifications. This type of risk stratification has created significant opportunities for fraudsters.
Prohibitions against the steering wheel
In early 2013, the HUD issued a warning to reverse mortgage lenders to avoid steering potential borrowers at specific HECM consulting firms. In some cases, lenders’ representatives were present or even attended counseling sessions. Some lenders provided advance copies of borrower review questions used by HECM consultants.
Remember that while lenders are required to provide a list of recipients HECM Consultants For the purposes of meeting the requirements for reverse mortgage lending, lenders are prohibited from directing borrowers to specific advisors. The ban specifically states:
“The lender can not direct, direct, recommend or otherwise encourage a client to seek the services of any particular consultant or consulting firm. Lenders are required to provide each client with a list of HECM consulting providers including national telephone counseling intermediaries and five local and / or client state agencies with at least one local agency within a reasonable driving distance for consulting. face to face”. [HUD Handbook 7610.1 Chapter 4-11]
Furthermore, lenders are prohibited from attending or participating in the advisory session. While the HUD Handbook allows reverse mortgage stakeholders, such as relatives and attorneys, to attend the borrower meeting, the HUD instructions specifically prohibit the lender’s representative from attending the borrower meeting.
Lenders are also prohibited from examining the questions or providing advisory questions to the borrower. This interferes with the advisor’s role in providing information to the borrower. In addition, the information provided by the lender is not guaranteed to be correct or current.
Failure to comply with the requirements set forth in the HUD Handbooks and Mortgage Lender Letters may result in referral to the Mortgage Review Board for appropriate sanctions, including, for example, political sanctions, suspension and revocation of FHA approval. .
Other consumer protection concerns
Not all consumer protection concerns about reverse mortgages come from fraudsters and fraudsters. Similar to many non-traditional mortgage products, some of the most important consumer protection issues arise. information asymmetry. In other words: reverse mortgages are complicated and borrowers do not understand their terms.
In its report to Congress in 2012, the CFPB identified three main shortcomings regarding transparency of reverse mortgages:
- The rise in the balance sheet and the fall in the equity of reverse mortgages are difficult for borrowers to understand with reverse mortgages.
- Innovation and policy changes on reverse mortgages were not adequately explained and confused consumers. and
- The federal notices required for reverse mortgages provided insufficient guidance on the pros and cons of reverse mortgages.
In addition, the relatively low barrier to obtaining a reverse mortgage has resulted in older people taking out a reverse mortgage at a younger age – sometimes even before retirement. This increased the risk of running out of own funds before they could plan for future health care or travel expenses.
The CFPB found that, instead of using reverse mortgage loan proceeds for day-to-day retirement expenses, most reversible mortgage recipients (73% in 2011) took out almost all of their equity capital to invest or save . Often, the investment was not repaid as much as the borrower raised interest on the reverse mortgage!
Another increasingly common practice is for borrowers to take out a reverse mortgage refinance a traditional mortgage and avoid monthly mortgage payments. While this has undoubtedly eliminated the borrower’s mortgage payments, easy liquidity has also threatened the borrower’s ability to plan for future costs. In some cases, the proceeds from reverse mortgages were used to extend unsustainable financial statements.
Borrowers with reverse mortgages who withdrew all equity from their homes were at greater risk of becoming overdue in taxes and insurance, and therefore more vulnerable to foreclosure.