The GAO also reviewed HECM lender marketing materials and highlighted six promotional claims and reasons they might mislead consumers:
1) Never owe more than the value of your home. Borrowers or their heirs could have a loan balance greater than the value of the home. While they could walk away from the property and not owe the money, they would need to pay it if for any reason they wanted to keep the home. The GAO said this was the most common misleading statement it encountered and was even made in government materials that were later changed.
2) Implications that the reverse mortgage is a “government benefit” or otherwise, not a loan.HECMs are federally insured but they are a loan, not a benefit.
3) “Lifetime income” or “Can’t outlive loan”. Borrowers can arrange to receive monthly payments so long as they stay in the home. But the payments cease when they leave or if they violate other conditions of the mortgage.
4) Never lose your home. Lenders can foreclose on a HECM borrower’s home if the borrower did not pay property taxes and hazard insurance or did not maintain the house.
5) Misrepresenting government affiliation. Some materials include government symbols and logos, and imply the lender is a government agency.
6) Claims of time and geographic limits. Some lender claims falsely imply that HECM loans are limited to a certain geographic area, or that the consumer must respond within a certain time to qualify for the loan.
Additional concerns were raised by Anthony G. Medici, a Housing and Urban Development criminal investigator. Again, while actual abuses are not large in number, he testified that the rising attractiveness of HECM loans, coupled with growing financial needs among seniors, makes the program more susceptible to fraud. A specific fraud involving “hundreds” of current cases, he said, recruits phony home buyers who move into abandoned or foreclosed properties that have been purchased for little money. Using fraudulent HECM applications, a reverse loan is executed on the property and funds are paid out in a lump sum to the organizers of the fraud. Some of the buyers are innocent, Medici said, and are forced out of the home because they can’t pay for upkeep, insurance and taxes.
