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As the falling stock market has crushed boomer retirement nest eggs, the number of federally insured reverse mortgages soared to 112,000 in 2008, up from 43,082 in 2005. HUD forecasts some 165,000 will be originated in this fiscal year.
So far this fiscal year, which ends September 30, HUD has referred 29 cases of suspected fraud to its Office of Inspector General for investigation, up from two the year before. Jacqueline Felton, who heads up the FBI's mortgage fraud team, says her agency is also seeing an increase. Indeed, HUD's data on suspected fraud likely understates the extent of the problem.
In the wake of the mortgage meltdown, regulators and law-enforcement officals 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 (HUD), 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.
Source: The Wall Street Journal, August 27, 2009
