HUD ORDERS HALT TO CHARGING SENIOR CITIZENS
WASHINGTON -- The Department of Housing and Urban
Development issued a directive today to prevent senior citizens
from being charged thousands of dollars each for information
about HUD's reverse mortgage program, Secretary Andrew Cuomo
announced. Cuomo said HUD provides access to the same type of
information on reverse mortgages free of charge through a
telephone information line: 1-888-466-3487.
THOUSANDS OF DOLLARS EACH FOR
REVERSE MORTGAGE INFORMATION
Cuomo said HUD today directed lenders that issue mortgages
insured by the Federal Housing Administration to stop doing
business with companies that charge the large fees for providing
information on HUD's Reverse Mortgage Program.
The HUD directive will go to the 8,000 FHA-approved lenders
around the nation from Assistant Secretary for Housing/Federal
Housing Commissioner Nicolas P. Retsinas.
Cuomo said HUD is conducting its own investigation of firms
charging large fees for HUD reverse mortgage information and is
asking the Federal Trade Commission to also investigate the
firms, which call themselves "estate planning services." He said
HUD will share information it gathers with the FTC, Federal
Reserve, State Attorneys General and local law enforcement
officials and ask their cooperation in gathering evidence and in
determining if the companies have violated any Federal or State
laws or regulations and can be prosecuted.
"We will not allow scam artists to use our reverse mortgage
program to victimize senior citizens," Cuomo said. "No one needs
these services to get a reverse mortgage. At no charge, HUD gives
people the name and phone number of a nearby HUD-approved non-
profit housing counseling agency. The counseling agency will give
callers information about our reverse mortgage program and tell
them how to contact at least three participating lenders."
Many older Americans signing contracts with the companies
charging the large fees are reportedly unaware that the firms
charge a fee of 6 to 10 percent of the total amount borrowed
through a reverse mortgage, Cuomo said. This works out to a fee
of $3,000 to $5,000 on a $50,000 reverse mortgage, and $6,000 to
$10,000 on a $100,000 reverse mortgage -- for information
available free from HUD.
The American Association of Retired Persons endorsed HUD's
actions. "For the last 10 years, AARP has worked closely with a
bipartican group of members in Congress, industry leaders, and
with HUD to ensure that consumers are protected against potential
fraud and financial exploitation," said Martin A. Corry, AARP
Director of Federal Affairs. "AARP today applauds HUD's prompt
actions to investigate this problem and their attempts to keep
such abuses from happening."
About 125 lenders -- many with multiple branches --
participate in the HUD Reverse Mortgage Program. The number is
expected to grow as the program gains popularity.
"By barring FHA lenders from dealing with companies that
charge huge fees to act as unneeded middle-men for HUD's reverse
mortgage loans, we will make it impossible for these companies to
continue taking advantage of older Americans," Cuomo said.
HUD will also seek to inform more senior citizens of the
reverse mortgage scam with a public service announcement that
Cuomo will record and make available to radio stations, he said.
Cuomo said people who want to report complaints about firms
charging high fees for reverse mortgage information can also call
HUD toll free at 1-888-466-3487.
In addition, anyone can get the entire list of HUD-approved
housing counseling agencies on the World Wide Web through HUD's
Home Page at http://www.HUD.gov or http://www.hudhcc.org.
HUD estimates that several hundred elderly homeowners have
been victimized by companies charging thousands of dollars for
information on HUD reverse mortgages. The companies are signing
up franchised distributors and expanding their activities, so
without action by HUD the number of homeowners charged exorbitant
fees for free information could soon grow into the thousands.
Lenders and AARP have identified six estate planners, most
of which may be affiliated with each other, that are charging the
large fees as: America's Trust Inc. and Patriot, Inc, both of San
Juan Capistrano, CA; Paramount Trust and Financial Services of
Oceanside, CA; Senior Information Services, of Dana Point, CA;
America's Financial, Inc., of Las Vegas; and Senior Financial
Services of Washington and Alaska, Inc., of Issaquah, WA.
HUD's reverse mortgages enable homeowners 62 or older to
borrow against the value of their homes. Homeowners receive
payments from lenders on a monthly basis, in a lump sum, or as a
line of credit. No repayments are required while a borrower
lives in the home. Lenders recover their loans plus interest
from the sale of the home when the owners die or move out.
The FHA has insured about 20,000 reverse mortgages around
the country since it began the program in 1989, and is working to
increase the number in the next few years.
Cuomo said the firms under investigation convince older
homeowners that they provide a valuable service by giving them
information about reverse mortgages.
In fact, lenders report that all the services often do is
give elderly homeowners the name of a HUD-approved housing
counseling agency and accompany the homeowners to a counseling
session. The counseling is legally required.
Lenders have told HUD that the services pressure older
people to get lump sum reverse mortgage payments -- so the estate
planners can collect their entire fee in one payment.
In addition, many of the services and their distributors are
reported to aggressively market multiple insurance policies to
the elderly borrowers, to collect even more money from the
proceeds of their reverse mortgages.
Even before today's directive to FHA-approved lenders, three
large mortgage companies acted on their own to stop doing
business with estate planners in issuing reverse mortgages. Cuomo
said those lenders -- Transamerica of San Francisco, CA; Wendover
Funding Inc. of Greensboro, NC; and Unity Mortgage Co. of
Atlanta, GA -- acted responsibly to save borrowers from being
charged unnecessary fees.
The HUD reverse mortgage program is formally known as the
Home Equity Conversion Mortgage (HECM) program and is referred to
by that name by the firms charging large fees.
"Reverse mortgages are an excellent way of allowing an older
person or couple to unlock the accumulated cash value of their
home without having to sell the home," Cuomo said. "This can make
a dramatic difference in the lives of many senior citizens."
The size of reverse mortgage loans is determined by the
borrower's age, the interest rate and the home's value. The older
a borrower, the larger the percentage of a home's value that can
be borrowed. For example, based on a loan at today's interest
rates, a 65-year-old could borrow up to 26 percent of the home's
value, a 75-year-old could borrow up to 39 percent, and an 85-
year-old could borrow up to 56 percent.
There are no limits on the value of homes qualifying for a
HUD reverse mortgage. However, the amount that may be borrowed
is capped by the maximum FHA mortgage limit for the area, which
varies from $81,548 to $160,950, depending on local housing
costs. As a result, owners of higher-priced homes can't borrow
any more than owners of homes valued at the FHA limit.
Content Archived: January 20, 2009