Right on Target

House-rich, cash-poor. That’s the situation of many California senior citizens who paid off their mortgages years ago and hold lots of equity thanks to the run-up in real estate values. So, just borrow against that equity? Take care.

Federal housing officials are so concerned about scams that they have made a preemptive strike to protect older homeowners attracted to so-called reverse mortgages. These homeowners, who must be at least 62, can borrow against the value of their homes and receive a lump sum, monthly payments for life or a line of credit. The loans are repaid when the houses are sold by the borrowers or transferred after their death.

The Federal Housing Administration requires people to attend free counseling sessions to learn about their options before obtaining FHA reverse mortgages. But some private firms charge high fees for this information.

The Housing and Urban Development agency said about 100 companies nationwide were charging up to 10% of mortgage proceeds for information on establishing reverse mortgages. Among them were six estate planning companies--three operated by the same Orange County businessman.

The government has informed lenders that they will be disqualified from all FHA programs if they knowingly make loans to owners who have been required to pay what HUD called illegitimate fees for information about reverse mortgages. Several hundred victims have been duped into paying these fees. HUD acted not a minute too soon.

To Take Action: Information on reverse mortgages may be obtained from HUD by calling the toll-free number (888) 466-3487 or from HUD’s Home Page at https://www.HUD.gov or https://www.aspensys.com/hcc