News & Updates

Home Equity Conversion Fraud

The Financial Crimes Enforcement Network (FinCEN) recently issued an advisory to highlight reverse-mortgage fraud schemes potentially related to the Federal Housing Administration (FHA) Home Equity Conversion Mortgage (HECM) program.

The HECM program allows seniors aged 62 and older to withdraw up to $625,500 of the equity in their homes if the senior meets minimum property standards. The seniors must discuss the program requirements and associated financial implications with a HECM loan counselor before proceeding.

FINCEN identified schemes involving thefts from seniors by family members, loan officers, and others as well as the use of unsuspecting seniors in property flipping and other HECM-related fraud schemes.

• Cross Selling
  One common fraud scheme involves the theft of a senior’s HECM loan proceeds through cross selling of financial products in violation of HUD rules.
• Cash-out Theft
  Another scheme involves the theft of reverse mortgage proceeds by individuals trusted by the senior, including family members, care givers, and loan officers.
• Straw Owner—Property Flipping
  Fraudsters (“straw buyers”) transfer ownership of a typically low-value or problem property to an unsuspecting senior (“straw senior”) without going through a mortgage sale. Fraudsters then instruct the straw senior to complete paperwork for a HECM loan against the property, using an overstated appraisal, or assume the identity of the senior to do so themselves.
• Straw Owner—Fake Down Payments
  Fraudsters have started “selling” low-value properties to seniors and create the appearance of a large down payment by the senior to purchase the property.
• Distressed Non-senior Mortgagors
  Distressed mortgagors under the age of 62 will sometimes ask senior parents, other family members, or friends to take a HECM loan for them.
• Power of Attorney
  In a variety of the fraud schemes noted above, the perpetrator may use a power of attorney (POA) for the senior to apply for and close HECM loans without the full knowledge or participation of the victim.

Fraudsters perpetrating HECM fraud schemes may seek the services of financial institutions for the purpose of receiving, depositing, or moving illicit funds relating to the scams. Financial institutions aware of such scams through their interactions with customers who have become victims should report this suspicious activity as provided for in 31 CFR Part 103. If the financial institution knows, suspects, or has reason to suspect that a transaction involves funds derived from illegal activity or that activities conducted or attempted by, at, or through the financial institution appear to be indicative of money laundering, terrorist financing, or other violations of law or regulation, the financial institution should file a Suspicious Activity Report.

Source:
http://fincen.gov/statutes_regs/guidance/pdf/fin-2010-a005.pdf