Stolworthy began the session by making it clear that he is a “big supporter of reverse mortgages” and thinks the HECM product is a great product for seniors. Unlike some past speakers from HUD, Stolworthy stayed for the entire conference, and lauded the conference and the industry for being so receptive and teaching him so much.

He noted that he had several dozen investigations targeting HECMs specifically, out of the 1250-1500 open mortgage fraud investigations.  He used these examples as proof that mortgage fraud within the HECM industry is real.

The HECM cases primarily involved cross selling, theft by loan officers, straw buyer schemes, and HECM for Purchase schemes. While Stolworthy noted that the fraud is not prevalent or widespread, it does involve several hundred loans.

Stolworthy also told the industry of the Homes for Seniors Program, a program involving gangs, such as the Crips, using HECMs to launder money and carry out organized criminal activity.  These fraud cases put seniors in homes and then take the proceeds of the reverse mortgage for the gang.

Stolworthy reiterated that they are looking for HECMs with cash out options and property flips as proof of fraud. However, it was refreshing to hear Stolworthy’s faith in the program and helpful for the industry as a whole to realize all the ways in which the product can be misused.

ASAC Michael H. Stolworthy
HUD-OIG
451 7th Street SW, Room 8266
Washington, DC 20410
mstolworthy@hudoig.gov

Source: NRMLA Conference

Financial Mortgage USA ( FMUSA ) has 30 days to respond to the Board’s proposed withdrawal and seek a hearing before an Administrative Law Judge.

In addition, the MRB is imposing the maximum $97,500 civil money penalty available against the Company for these violations. A complaint seeking these civil money penalties will be served upon Financial Mortgage USA in due course and the lender will have 15 days to request a hearing on the imposition of these civil money penalties.

“FHA will not tolerate lenders who violate our rules and prey on those who depend on a reverse mortgage to continue to live independently,” said FHA Commissioner David Stevens. “FHA-approved lenders must understand that we mean business when it comes to protecting the FHA insurance fund from those who cut corners and take advantage of unsuspecting senior citizens.”

Reverse mortgage lenders are using financial incentives to reward brokers for deals that boost lenders’ profits and raise borrowers’ costs in much the same way subprime mortgage lenders did, notes the report released by the National Consumer Law Center.

U.S. Sen. Claire McCaskill (D-Mo.), said “We’ve seen this movie before, and it didn’t have a pretty ending. Abuses in the subprime lending market almost brought down our economy. Now we’re seeing similar abuses with reverse mortgage lending. Something needs to be done before more life savings are depleted and more tax dollars are drained.”

Source: Sun Times

Jane Macam McClellan, 48, is wanted on suspicion of financial abuse, embezzlement and forgery and is apparently on the lam, according to Fairfax police Sgt. Stuart Baker.

The Fairfax couple, a 98-year-old woman and her 92-year-old husband, employed McClellan for about six months ending in August, when the couple’s family found financial irregularities and fired

McClellan allegedly used the couple’s credit cards and also spent their money to hire her own family members for housekeeping work, Baker said. In addition, McClellan allegedly increased the couple’s reverse-mortgage payments to help disguise the effects of her spending.

Police said McClellan’s place of residence is unclear, but that she has family ties in Marin and Contra Costa counties. She could be driving either a teal 1994 Pontiac Firebird, license plate 4VSZ752, or a green 2003 Pontiac Sunfire, plate 5EVW172, possibly to drive or pick up her children at Kent Middle School, police said.

Anyone with information about the case is asked to call the Fairfax Police Department at 453-5330, or Bay Area Crime Stoppers, an anonymous multilingual tip line, at 800-222-TIPS.

The Oregon Department of Consumer and Business Services said today it fined four firms and 11 marketing and salespeople in Oregon, Illinois and Indiana involved in the operation. Oregon residents plunged $5.3 million into the investments and lost nearly all of it, state officials said.

The scheme orchestrated by Michael E. Kelly of South Bend, Ind., sold time shares in Mexico’s Yucatan Peninsula starting in 1999, state officials said. The units were to be rented by affiliated companies through “universal leases” and provide returns to investors of 9 to 11 percent a year.

Those fined, according to the news release, included Stephen Monroe of Portland; Dale Lauder of Wilsonville; Roger Stewart, Douglas Laird and Bill Boedeker (aka Billy Lynn Boedeker) of North Bend; Lawrence Beard and Joel Whaley of Prineville; Kenneth Christensen of Bend; Royal Edwards of Redmond; and James Theeler of Salem.

Monroe persuaded one client to take out a reverse mortgage on her property and invest the proceeds in the scheme, state officials said.

Beard and Monroe sold leases to 90 investors totaling $2.4 million while pocketing commissions of 10 to 13 percent, according to state officials. Monroe was fined $157,680.

“We’re seeing some of the same types of abuses that happened in the subprime market – perverse incentives to sellers, deep-pocket players, taking a product designed to fill a particular need for a particular group and pushing it as a commodity loan,” said Rick Jurgens, a contributing author of the report from the National Consumer Law Center, a Boston nonprofit that represents low-income people.

The report cited aggressive marketing tactics, and said seniors are sometimes pressured to use reverse mortgages to buy inappropriate financial products, such as annuities. It did not cite any statistics to document abuses. The law center recommends tightening consumer protections.

Legislation pending in California would add some safeguards, said Prescott Cole, senior staff attorney at California Advocates for Nursing Home Reform, a San Francisco nonprofit. A bill that passed the Senate and Assembly and awaits the governor’s signature would establish a suitability checklist for reverse mortgages.

Read more: http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2009/10/06/BUQI1A1F79.DTL#ixzz0TFqB6oWB

More on: Reverse Mortgage Marketing

“A senior may not know they are eligible for $100,000 in equity for their home — they may think it’s only $60,000,” said Elisabeth Daniels with Nevada’s Fight Fraud Task Force. “If they get fraudulent counseling, when the loan goes through, the counselor goes and takes the extra money they didn’t know they were eligible for,” she said.

Reverse mortgage lenders don’t provide counselling. Counselling is provided independently by HUD sanctioned counselors. Most counseling that I see is done by phone and there is no opportunity for a counselor to collect equity from a senior. How is this supposedly happening?