Real Sage Advice

Mortgage Fraud Rampant

Found on the FBI website...

This photo is  from a condo that was involved in a mortgage fraud. The appraisal described “recently renovated condominiums” to include Brazilian hardwood, granite countertops, and a value of $275,000.

Minnesota is in the top 10 for Mortgage Fraud. As Senior Housing Vacancy Rates Increase, and seniors and their families become more anxious to get the family home sold, they are prime targets for schemes to refinance the home, or for innacurate appraisals. 

If it seems to good to be true, it probably is.

Can Reverse Mortgages Help Seniors Avoid Foreclosures?

Predatory lending and the mortgage crises didn't just effect first time home buyers.  We saw a number of seniors become prey to fradulent home-equity loans that allowed them to over- finance their home, increase the monthly payment, and leave many destitute trying to figure out if they should pay for groceries, prescription drugs or the mortgage.

I asked a professional I trust, Gail Wempner from Reverse Mortgage Marketplace in Minneapolis to comment.  Here's what she said:

Rising numbers of home foreclosures are taking place in Minnesota, as well as nationwide.  And the elderly have not been immune from the lure of low initial “teaser” rates of adjustable rate mortgages and other inappropriate home financing programs for those on limited, fixed incomes. A reverse mortgage may help senior homeowners (age 62 and older) who are falling behind in their mortgage payments avoid foreclosure.

An ideal prospect is a senior who has built up a considerable amount of equity in their home and is more recently unable to keep up with mortgage obligations.  They may be experiencing financial stress due to rising mortgage payments or any number of unforeseen events such as huge medical expenses, job loss, increased taxes or divorce.  Once the homeowner falls behind, the debt load can increase significantly and quickly through fees and dramatically higher interest rates.  Thus it is important for the homeowner to look into their options sooner, rather than later.

Unlike a home equity loan or conventional mortgage, a reverse mortgage does not require any repayment as long as the borrower lives in the home. Any existing lien or mortgage must be paid off with the proceeds of the reverse mortgage, and when there is enough equity to do this, the home can be saved from the foreclosure process.

The best course of action is always to first contact the lender to see if a repayment schedule can be worked out. But a reverse mortgage can sometimes save the day, and if you know someone who might be a candidate, please urge them to investigate their options. 

I am always available for information, without obligation. Gail can be reached at (952) 544-0821 or gail@marketplacehome.com.

Other Blog Articles

Another Example of Fraud Against Seniors

See other articles by Gail Wempner

Seniors at risk for Tax Fraud Scam

It's tax season again, and it seems the crooks are bringing their "A" game. Seniors are likely to ask for help with their tax returns, especially if it's inexpensive! Imagine a crook requesting 3 years of statements from the Social Security Administration that includes benefits, and of course, the victims social security number. The returns are doctored to the senior gets a nice little return, and pays the crook $40-$100 for the tax preparation. The senior gets the much anticipated and badly needed tax return and spends it, only to get a demand letter from the IRS months later, demanding return of the money due to mistakes made on the return.  The crook, is long gone, with the victims social security number.

Crooks wield both crowbars and calculators, one more damaging than the next.

Another Example of Fraud Against Seniors

Business week published a story over the weekend: House price: $3,500. Mortgage $228,000.  It's a story about a senior couple living in North Minneapolis who purchased their home in 1977 for $3,500 and it's now worth $174,000. The problem? They owe $228,000 on it.  You have to scratch your head and wonder how in the hell this happens to people. There are a *LOT* of people involved in *ANY* real estate transaction, even if it's just a refinance. The appraiser, title closer, mortgage officer, underwriter, and processesor just to name a few.  A number of things had to go wrong for this couple:

1. According to the article this couple paid $4000 for an appraisal. In Minnesota an appraisal costs between $300-$400.
2. The appraiser had to appraise the house at $228,000 for the lender to approve the loan.
3. When banks were approached with refinance applications a few years ago, it wasn't a big deal if appraisals were a little "off".  Appreciation was rising so rapidly that a few months appreciation of a home would make up for a slightly inflated appraisal.  Today, it would take a year or two for a home to appreciate enough to make up for a 3-5% difference in actual value to the appraised value.
4. The law provides for consumers to receive a good faith estimate (GFE) on any new mortgage. The GFE discloses all of the fees related to closing the loan as well as the new monthly payment.
5. Have you ever tried to read a GFE?  Unless you work in accounting, if someone doesn't actually explain it to you, it's like trying to decipher a foreign language.
6. The borrower has to sign the GFE.  We as a consumer sign things all the time without asking enough questions-our older generation is no exception.
7. The couple also had to disclose their income. Instead of signing a disclosure statement that said they had an $800 monthly income, they signed a legal document stating they had a $6000 monthly income.
8. Someone at the lender had to have the couple's bank statements and generate that document that said they had $6000 monthly income.

Who's to blame? Would you say "Shame on the predatory professionals?" or would you say "Caveat emptor?"  I could make a case for both the professionals and the consumers.

Frankly, what matters is there are consumers all over the country that this has happened to, and there isn't really any course of action for them. At least, nothing that will remedy their situation fast enough to ease the financial burden enough to help them comfortably stay in their home. Place blame where you will. It's tragic.

Other Blog Articles:

Senior Homeowners at risk for fraud and subprime loans-STILL
Seniors: Make sure you know what the contract says

Senior Homeowners at High Risk for Fraud and Subprime loans-STILL

There's no shortage of talk about the sub-prime market and the damage it has done to both the housing market and unsuspecting families. We haven't seen the last of predatory lending. In fact, recent events are creating the perfect storm for unscrupulous lenders to take even FURTHER advantage of our elderly.

The Seattle times did two different articles that outline what senior homeowners are up against.  The first article, "The fleecing of Frances Taylor" will keep you up at night. It outlines a string of events and a very long list of "professionals" who got in line to take advantage of a Taylor, a senior with $2 million in assets, who is now bankrupt. The second, "Homeowners in debt, seniors prime target of riskiest loans" spells out the dangers for our elderly who have a large amount of equity in their homes.

More than one in three borrowers in King County who got loans from the same lender that foreclosed on Taylor were 50 or older, and one in seven was 60 or older, according to a Seattle Times analysis of more than 4,000 loans by Ameriquest Mortgage. Not only that, nearly all of those borrowers already owned their houses. Seattle Times.

Now we find ourselves 1-2 years after these seniors have filed Chapter 13 personal bankruptcies.  For many of them their credit-card debts have been discharged or dismissed but the bankruptcy proceedings are not yet finalized.

Lenders can now develop a list of consumers with lower credit scores, but considerable equity in their homes. (Who has considerable equity? People who have lived in their homes for a long time...seniors).  These lenders approach these consumers promising to get them out of bankruptcy for a price, typically offering a new home loan with more fees and a higher interest rate. A new home loan+more fees=a higher house payment for seniors who are often choosing between paying the heating bill, buying groceries, or buying prescriptions. If you're unable to pay the mortgage, the bank takes your home.

This will keep me up at night.

You know, Do your parents? Identity Theft.

The number amount of fraud committed against seniors continues to be disproportionate to the rest of our population.

We hear about this information all the time and most of us consider ourselves to be fairly wise consumers.  I certainly thought this.  I happen to be talking with my parents about this and told them I used to carry my social security card with me, and now I now I keep it locked up.  They both got very quiet and I asked them...are you carrying your social security card with you?  Sure enough.  Reveiw this checklist for yourself, and then do it with your parents.

1. Don't carry your Social Security card with you. Keep it in a safe place at home.
2. Don't carry automotive insurance policies or car registration in your car.
3. Hang on tight to your purse (dangling it from the back of the chair in a restaurant is a no-no.,   and carry a purse that zips and keep it zipped shut!)
4. Burglar-proof your home, and keep your important documents and financial records locked up.
5. Never write down passwords or carry them with you.
6. Don't give out your financial or personal information over the phone or Internet unless you initiated the contact.  This last week alone I've had 4 emails from credit unions and banks that said they had to freeze my account until I updated my information with them.  Which, I would be glad to do IF I HAD AN ACCOUNT WITH HTEM!  I just deleted the emails.
7. Give out your Social Security number only when necessary.
8. Each of the three credit reporting firms will give you one free credit report per year.  Look at your report at least once per year, if not every 6 months.
9. Invest in a paper shredder. Shred all financial statements, billing statements and even that preapproved credit card junk mail. 
10. Minimize the number of credit cards you carry with you.
11. Cancel credit cards you haven't used in the last 6 months (although if you've had some of these open for a long time, you'll want to consider the impact this might have on your credit score).
12. Review all of your financial statements every month for unfamiliar charges.
13. Get your name taken off direct mail lists. Write to:

Direct Marketing Association

Mail Preference Service

PO Box 643

Carmel, NY 10512

We won't ever be able to prevent crime 100%, but we can protect ourselves, and make it more difficult for the thugs to steal from us.