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The growing popularity of reverse mortgages is allowing seniors to tap the equity in their homes and remain financially independent long after they might otherwise have been able.
There are reputable lenders who offer reverse mortgage products, which are insured by the Federal Housing Authority, part of the U.S. Department of Housing and Urban Development, or HUD. But there also are scam artists who may try to prey on the older Americans who can most benefit from a reverse mortgage.
Here are some common reverse mortgage scams – and tips for avoiding them:
1. Do not do business with so-called “estate planning services” charging you a percentage of the loan for information on reverse mortgages. You should never have to pay to learn about reverse mortgages. HUD provides access to the same type of information free. Call (800) 569-4287, or go online to www.hud.gov/offices/hsg/sfh/hecm/hecmhome.cfm. AARP also provides free information at (800) 209-8085.
2. Beware of a lender or financial adviser trying to pair a reverse mortgage with the sale of another financial product like an annuity or a living trust. AARP warns that investments funded from reverse mortgages are a “bad idea, because the loan is likely to cost more than you could safely earn.”
3. Be wary of any service company trying to persuade you to take out a reverse mortgage to pay for home repairs. These companies may refer you to a partner that will “help” you get a reverse mortgage, pocketing thousands in cash along the way.
4. Carefully review the reverse mortgage loan papers to ensure you’re not borrowing more money than agreed upon.
Because reverse mortgages are complicated, HUD requires pre-loan counseling from an approved, independent, nonprofit counseling service. If possible, meet with the counselor in person to discuss your options, but phone counseling also is available. Expect the meeting to last at least one hour, or two phone calls.
You can find a list of HUD-approved counselors through HUD’s Web site. Another link to the list is provided at www.hecmresources.org/states/reque_state_index.cfm.
AARP also can refer you to reverse mortgage counseling if you call (800) 209-8085 Monday through Friday from 7 a.m. to midnight Eastern time. Ask for reverse mortgage counseling.
To report a reverse mortgage scam, call the Federal Trade Commission at (877) 382-4357, or go online to www.ftc.gov.
Published on July 21, 2008