Reverse Mortgage Scams? What Seniors Need to Know.

If you or someone you care about is 62+, you’ll know it’s important to avoid sketchy financial offers targeting older adults. But what about reverse mortgages?

From time to time, media outlets point to scams or high-pressure tactics involving reverse mortgages. And it’s true that reverse mortgages are designed for senior homeowners.

But are these loans deceptive? Let’s take a look.

First Things First: Stay Safe Online.

Homeowners at different stages of a mortgage receive various offers through emails, texts, and phone messages. Some try to get longtime residents thinking about tapping the value of their home through a reverse mortgage.

Safety first. Messages out of the blue suggesting the recipient take out a reverse mortgage are best deleted. Answering an email or clicking a link can lead the recipient directly into a scam.

Anyone curious about the loan and whether it could be helpful should be the one to initiate a discussion with a local, reputable mortgage pro.

Look for these red flags for solicitations over the phone, in emails, or on websites:

Hardball tactics.

Upfront charges to answer basic questions.

Language in the message that’s oddly written, or from an unknown account.

Unrealistic promises.

And if the business doesn’t want the homeowner’s current lender or other professional to know about the contact? Major red flag.

Know How Reverse Mortgages Work.

A mortgage holder whose home is mostly paid off has built up a store of value. Through a reverse mortgage, the homeowner can use that value to receive (rather than pay) money every month. But the roles aren’t totally reversed. The homeowner does have to pay interest to the lender.

The borrower may be assigned an approved counselor. This way the borrower gets a contact who can point in the direction of approved lenders, with reasonable terms and rates. They should also speak with their own financial advisers to understand how the loan will impact their personal credit profiles, taxes, and so forth.

Once the loan is in place, the reverse mortgage borrower will be able to accumulate a balance in the account month by month.

Is it for everyone? No. Is it good to have the option? Most homeowners would likely say financial options are a good thing. As with any type of financing, proceed with caution. Choosing a reverse mortgage lender should only be done after mindful research, and the relationship should be forged on the homeowner’s initiative.

Are These Good Loans Getting a Bad Rap?

Not long ago, Comedy Central featured a sketch about reverse mortgages. It suggested that reverse mortgage lenders use boomer TV personalities to reel in older homeowners.

Younger generations, help senior relatives avoid high-pressure advertising and scams. The inheritance you save could be your own.

In reality, there’s a reverse mortgage backed and insured by the U.S. government. Interested readers can consider the FHA’s popular Home Equity Conversion Mortgage (HECM).

Only legitimate, approved lenders issue HECM products. The loans come with important safeguards for homeowners. This makes the HECM a solid option for people wanting to tap the value stored in their homes.

And yes, the HECM is for adults aged 62+, but that doesn’t make it deceptive. Good loans don’t deserve bad raps.

That said…

When It Is a Scam, Elders Lose Big.

We might believe seniors make up the bulk of scam targets. The real picture is more complicated. The Federal Trade Commission receives the most fraud complaints from people aged 30-39, not from older generations.

That being said, by far the bulk of the money lost to scam artists was diverted from the assets and funds of adults aged 60+.

And in fraud cases, people in their 70s and older lose much more than their juniors, according to FTC numbers.

Many scammers do use nonstandard mortgages to cheat older homeowners out of their property value, and even out of their precious homes.

So, What Are the Main Signs to Look Out For?

When a scam involves a reverse mortgage, there’s likely some other element that comes with it. There can be:

Pressure from someone close to the homeowner. An older adult may get pressed into getting a reverse mortgage, then allow someone else to control the funds. If this someone else is not trustworthy, the homeowner can sustain heavy losses. Sometimes an adviser, assistant, or relative will inappropriately press the older adult to sign over power of attorney. (That means handing over authorization to represent the senior in financial deals.)

Equity theft scams. Somes scams involve presenting false appraisals to the homeowner, who then thinks the home has more value than it actually has. The idea is to persuade older adults to take out a loan. Then the swindlers use false documentation to take control of the funds.

Balloon payment terms. Look out for very high payments that come due in the future. Although they might not constitute scams, they can feel like gotchas.

Home-repair scams. Some companies will tell homeowners they can both (a) get the homeowner’s financing in place to cover the renovation; and (b) have contractors do the work. Then the homeowner signs up for a loan with treacherous terms. Some of these companies never carry out the work.

Foreclosure-related scams. When a mortgage borrower slides into default, swindlers may turn up. They may press the struggling homeowner to take out a reverse mortgage to save the home. In a variation on this theme, a shady actor might lend money on home equity without caring if the homeowner can afford the loan. This puts the homeowner in a worse jam. A reverse mortgage, too, can be foreclosed on!

So, research potential lenders. And if you have legal questions, speak with an attorney. A borrower can also talk with their existing mortgage company about loan refinancing or modification. It may be possible to tack time onto the end of an existing mortgage loan and draw out the payments — averting the need to take out a new loan.

A caution about signing over your home’s deed: Questionable actors promise foreclosure relief if owners sign their deeds over. Learn more about foreclosure “rescue” companies here.

Do You Believe Someone Is Trying to Manipulate You or Your Home’s Value?

If so, know that the Department of Housing and Urban Development has a hotline for reporting fraud: (800) 347-3735.

Reverse mortgages are good financing options to have. Scams that exploit them are not. Know how to spot these scams, and be sure to clue (especially older) friends and relatives in.

Supporting References

Website of Attorney General Josh Stein, North Carolina Department of Justice, via NCDOJ.gov: Protecting Consumers – Home Equity Scams.

Rachel Hartman for U.S. News & World Report: Ten Common Scams That Target Seniors and How to Avoid Them (Feb. 2, 2024).

Lauren Nowacki for Rocket Mortgage® via RocketMortgage.com: How to Recognize a Reverse Mortgage Scam (May 16, 2023).

Chris Clow for HW Media, LLC, via HousingWire.com: Are Seniors as Susceptible to Online Scams as People Think? A Reverse Lender Says No (Mar. 5, 2024; citing fraud loss reports filed with the FTC).

HW Media, LLC, via HousingWire.com: The Daily Show Takes Aim at Reverse Mortgages and…Horses? (Dec. 1, 2023).

And as linked.