Advocates for the Elderly (A for E) is an organization that was formed to protect old people from fraud and to help assure that people in their 80’s and 90’s are not ripped off by health schemes and other ways for dishonest people to get hold of person’s retirement money. One of the latest ploys of crooks is in the area of Reverse Mortgages (RM).
What has been happening, especially in California, is that insurance salesmen have been posing as investment counselors who have a real estate expertise. In the process of talking to people that totally own their home (and would like to get some of their equity out of the house), they suggest an RM.
But, what they don’t tell you is they are “bundling” the RM with a very expensive annuity where they make a handsome sales commission. Mr. Peter Bell of the National Reverse Mortgage Association (NRMA) has appeared on radio and television warning people about the charlatans who have entered into selling RMs and has suggested that anytime an RM is packaged with another financial product, a person is asking for very expensive problem. That (bundling) is when an RM becomes INCREDIBLY EXPENSIVE.
When the deal goes down, the elderly person entering into the RM deal is immediately hit with, (for a real example) a $19,000 closing fee and a 17,000 initiation fee for the annuity (although they may call both of these fees something that sounds very legitimate)……….and……..what may also happen is the RM is accompanied by an interest compounding charge that becomes a large monthly payment. One “thief” selling RMs recently sold a 92-year-old man an RM that was tied to a deferred annuity that matured in 2063. The thief received a commission of $72,000 for his effort, and, of course, the old man never knew what hit him until his children began to investigate.
Older men and women are getting flyers in the mail (as many as six a week – offering a free meal at a local restaurant) to attend seminars on investments, and many of these seminars are specifically aimed at people who own their homes (fully paid off) so that the speaker can promote the idea of an RM coupled with another financial instrument.
NRMA says:
Never tie a Reverse Mortgage with another financial product !!
Abuses in the RM market have increased 1237% in the last year with some of the fees tied to swapping of financial instruments with municipal bonds bundling the transaction with insurance or investments:
• That the elderly person does not need
• Costs the elderly person lots of money
• Has incredibly expensive fees (as much as $125,000)
• Includes a middle man that makes lots of money
• Reduces the actual money that goes into the elderly person’s bank account
NRMA says that these RM sales people are:
• Incredibly convincing and focus on gaining the confidence of the elderly person
• They are very aggressive sales people that hide their real motives
• Say that they are registered (when in fact, they are not)
• Suggest they have real estate experience (that they do not)
• Hide the bundling part of the project
• Do not clearly state the fees that will be charged
• Do not explain that some of the deals have ongoing expensive monthly fees……especially compounded interest
• Do not openly explain the deferred annuity transaction (nor its timing)
• Nor do they tell you that they are making a hefty commission
In light of all of the problems with an RM, some states have regulations that now require counseling of the elderly person before the deal is signed. The counselors, however, are part of the same organization that is selling you “the deal.”
A for E says: There are very big consequences with an RM, and sales people often give you the impression that “you are missing out” on a good thing by not considering an RM. These sales people adroitly use customers who bit on their bundling deals to solicit other new customers….so….A for E suggests NOT listening to your neighbor (who may have been hoodwinked herself/himself). Talking to a registered real estate agent who deals with RMs and does not try to sell other financial deals or insurance makes much more sense than listening to a stranger.
One’s bank might also be a place where elderly can get good advice—as long as the banker does not try to sell you other financial instruments. Anyone considering an RM should have a very knowledgeable person review the total transaction to assure that all fees are well identified prior to an escrow. Spell out all fees before signing papers.
Also — some elderly people have gone at this alone without telling their children (kinda like saying “I know how to handle my money”). One woman in Salinas, California did such a terrible job in handling her RM that she ended up in the hospital with stomach problems….and…..for a long time she was too embarrassed to tell her daughter what had transpired until it was too late. This woman has virtually lost most of the equity in her home (that had been totally paid for).
