You should be aware of a few of the most common scams or misleading practices within the reverse mortgage industry. These practices could cost you thousands dollars of equity. Below are some of the more common practices that could be misleading to seniors. Please email us with any other questions by clicking here.

Bait & Switch

Many reverse mortgage lenders or brokers are active in both reverse and traditional mortgages. Many seniors are directed into a traditional loan (with payments) only because the lender or broker could make more money on the traditional loan. At Harvard, we specialize in reverse mortgages. We do not do traditional mortgages therefore you do have this fear when dealing with our company.

Non-Qualified Lenders

Some lenders or brokers push traditional mortgages because they are not qualified to do reverse mortgages. The most popular reverse mortgage program (HECM) is insured by FHA. Many brokers are not approved by HUD therefore they cannot offer the HECM loan. Whenever a loan officer (originator) suggests you make application for a traditional mortgage, you should ascertain whether they are qualified to offer the HECM program.

Margins

The vast majority of reverse mortgages are ‘Adjustable Rate Mortgages’ – referred to as ARM loans. Future interest rates will be based upon the interest rate on the index (either the Libor or T-Bill) plus the ‘margin’. As a consumer, you should be very leery of any margin greater than 1.50%.  Mortgage lender and brokers will offer higher margins in an effort to make additional money on your reverse mortgage. A higher than normal margin could cost you thousands of dollars in interest over the life of your loan.

Internet Sites

Many internet sites that give the appearance of being sponsored by a consumer protection company when, in fact, they are in the business of collecting your information to sell to mortgage originators. You should read about the company (most sites will have a link such as “About Us” to determine what type of company has posted the website. We have provided you with several useful links to companies that will not sell your information – see here.

Charging for Free Information

Beware of estate planning companies that charge for information provided free from HUD. Estate planning companies could charge for this information as part of an estate planning program. You could be unaware that for these firms are charging 6-10% for these programs. On a $100,000 reverse mortgage you would be charged $6,000 to $10,000. HUD has recently issued a directive to lenders that issued reverse mortgages insured by the Federal Housing Administration (FHA) to stop doing business with these companies. Harvard does not do business with these types of firms.

Selling Other Products

Some companies are licensed in the mortgage industry and are also active in the investment industry. These firms may suggest you obtain a reverse mortgage to purchase other products such as annuities or insurance products. If you are considering a reverse mortgage as part of your overall investment strategy, we encourage you to seek out competent advice from different companies for the reverse mortgage and the investment counseling.

Shared Appreciation Reverse Mortgages

Some lenders have used shared equity or shared appreciation terms, which gives the lender the right to collect a portion of the appreciation when the home is sold or refinanced. The cost of these provisions can run into the tens of thousands as the home appreciates. These rising cost provisions eat up equity without providing any additional benefit to the homeowner.