HUD Warns of ‘Illegitimate’ Fees for Reverse Mortgages
Worried about possible scams in the growing business for reverse mortgages, federal housing officials Monday directed lenders to stop dealing with companies that are charging the elderly high fees for information the government provides for free.
The Housing and Urban Development identified six estate planners--three operated by the same Orange County businessman--as among perhaps 100 companies nationwide that are charging up to 10% of mortgage proceeds for the information.
The agency told lenders “in no uncertain terms,” said HUD Secretary Andrew Cuomo, that they will be disqualified from all Federal Housing Administration programs if they knowingly make loans to people who have to pay such firms.
“What they are doing is illegitimate,” FHA Commissioner Nicholas P. Retsinas said. “There is literally no value received” for the fees.
Cuomo said HUD is working with state attorneys general and the Federal Trade Commission to determine if civil or criminal actions should be brought.
HUD learned of the fees in recent weeks and decided to act quickly because some companies were selling “distributorships” to others around the country, officials said. A scheme with several hundred victims, they feared, would quickly turn into one with several thousand.
Reverse mortgages allow cash-strapped seniors to borrow against the value of their homes, taking a lump sum, monthly payments for life or a line of credit. The loans are repaid when houses are sold by borrowers or transferred after their deaths.
The FHA, which controls nearly half the market, requires people over 62 to attend free counseling services to learn about their options before obtaining reverse mortgages. The centers--61 in Southern California alone--also refer seniors to FHA lenders.
That same process is what the estate planners are doing for fees ranging from 6% to 10% of the loan proceeds, HUD officials said. In addition, the companies try to sell annuities or other insurance products to the seniors once they have their mortgage money, Cuomo said.
For instance, Maxine Wittig of Norwalk paid $5,571 to America’s Trust Inc. in San Juan Capistrano simply for an agent to come to her home and refer her to a reverse mortgage lender. The company, she told HUD officials, never told her she would be paying 10% of her loan amount for that service.
But Jeff G. Butler, who runs America’s Trust and Patriot Inc., said all information is revealed to customers and that his companies have done nothing wrong. He also runs Senior Information Services in Dana Point, which he said is an insurance company.
He said seniors still come to him even after he steers them to the HUD-approved free counseling services on reverse mortgages. And those who buy fixed-income annuities from the proceeds are getting investments that carry “no risk,” he said.
“The only fee we get is from the customers, and only if they get their loans,” Butler said. “If they still decide to choose us [after counseling], they should be able to. We think it’s a great program.”
He said lawyers have looked over his operations and found nothing illegal or inappropriate.
The other firms identified by HUD are Paramount Trust & Financial Services in Oceanside; America’s Financial Inc. in Las Vegas; and Senior Financial Services of Washington & Alaska Inc. in Issaquah, Wash. None of the companies’ representatives could be reached for comment.
The FHA program, begun in 1989, has insured about 20,000 loans--about 5,000 in the last year alone. Such loans are “increasing rapidly,” Cuomo said, as lenders and seniors learn more about them.
Butler doesn’t plan to leave the market. He said he now will go to the private market, which has made about 25,000 such loans, to find lenders willing to make uninsured reverse mortgages.
