Last summer, Lawrence Ford jumped into the fast-growing market for so-called reverse mortgages. The retired auto mechanic and horse trainer used the money he received to pay off his existing $70,000 mortgage and “piddled away” the remaining $24,000 on things like restaurant meals for his four girlfriends, he says.
Reverse-Mortgage Meltdown?
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Chip Litherland for The Wall Street Journal
See photos from Mr. Ford’s home.
Or so Mr. Ford thought. Last month, the owner of the Orlando, Fla., title company that handled his loan admitted to stealing more than $1 million from several reverse-mortgage holders, including Mr. Ford. Bank of America Home Loans, a unit of Bank of America Corp., says the title agent never sent it the money required to pay off Mr. Ford’s mortgage. As a result, Mr. Ford says, the bank recently threatened to foreclose on his seven-acre ranch in Archer, Fla.
“That will put me on the streets with my cars and horses and tools,” says the 68-year-old Mr. Ford. Bank of America, which says there is no immediate danger of foreclosure, adds that it is working with Mr. Ford “to find a home-retention solution.”
In the wake of the mortgage meltdown, regulators and law-enforcement officials are sounding alarms about the potential for yet another type of mortgage fraud—this time, in the small but fast-growing reverse-mortgage market. Such fraud, though still rare, “is occurring in every region of the United States and reverse-mortgage schemes have the potential to increase substantially,” according to a recent publication issued by the Federal Bureau of Investigation and the Office of Inspector General at the U.S. Department of Housing and Urban Development, which oversees the federally insured loans that account for some 99% of the reverse-mortgage market.
Available to people 62 and older, reverse mortgages allow homeowners to convert their home equity into cash. Instead of writing a check to the bank each month, the bank pays the homeowner, who can elect to receive a lump sum, a line of credit or monthly payments. The loan is repaid, with interest, when the borrower dies, moves, sells the house, or fails to pay property taxes or homeowner’s insurance.
Reverse-mortgage fraud, typically committed by homeowners’ relatives, caretakers or financial advisers, has also been cropping up recently in schemes to unload distressed real estate. Regulators cite cases in which real-estate speculators bought properties on the cheap and then sold them, using inflated appraisals, to senior citizens willing to take out reverse mortgages.
Lenders and administrators of the HUD program say reverse mortgages, for the most part, are still working well. “There are little scams around the edges,” says Meg Burns, director of Single Family Program Development for the …
Read the original article at WSJ
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August 27th, 2009 at 10:10 am
Good to see the “watch dogs” are on alert and catching the wrong-doers!
September 7th, 2009 at 8:12 am
The reverse mortgage business still seems a bit shady to me. I would hate to lose my home over a few thousand dollars. I would only risk my home if I needed a large loan, or if my life depended on it. Other than that, if it’s paid for I would rather keep it totally in my name. With all the fraud going around in the mortgage market, I would be one of the victims. Better to keep their hands out of my Deed to start with.