HUD estimates that several hundred elderly homeowners have been victimized by companies charging thousands of dollars for information on HUD reverse mortgages. The companies are signing up franchised distributors and expanding their activities, so without action by HUD the number of homeowners charged exorbitant fees for free information could soon grow into the thousands. HUD's reverse mortgages enable homeowners 62 or older to borrow against the value of their homes. Homeowners receive payments from lenders on a monthly basis, in a lump sum, or as a line of credit. No repayments are required while a borrower lives in the home.
Lenders recover their loans plus interest from the sale of the home when the owners die or move out.
The FHA has insured about 20,000 reverse mortgages around the country since it began the program in 1989, and is working to increase the number in the next few years. Cuomo said the firms under investigation convince older homeowners that they provide a valuable service by giving them information about reverse mortgages. In fact, lenders report that all the services often do is give elderly homeowners the name of a HUD-approved housing counseling agency and accompany the homeowners to a counseling session. The counseling is legally required. In addition, many of the services and their distributors are reported to aggressively market multiple insurance policies to the elderly borrowers, to collect even more money from the proceeds of their reverse mortgages.