4 lenders must stop reverse mortgages

State regulators yesterday ordered four companies to stop selling reverse mortgages, which are loans designed for senior citizens who want to cash out some equity in their houses.

The Division of Banks said they violated a statute that sets standards for reverse mortgage sales. Borrowers don't repay the loan until they sell or move out of their home, or their estate must repay the loan after they die. Regulators worry some seniors may not realize how much debt they are accumulating, and how much equity is depleted.

Massachusetts has among the toughest regulations for reverse mortgages. For example, it requires lenders to submit an application to make reverse mortgages. But the four named yesterday did not get state approval, said John Prendergast, the division's chief risk officer.

So far, the division believes fewer than 50 mortgages were involved at the four companies.

The companies include Andover lender and broker First Call Mortgage Co., as well as Sun West Mortgage Co. and Gold Reverse Inc., both of California. American Advisors Group Inc., a California loan broker, was also ordered to cease operations for allegedly marketing its product as a government benefit. The state also said First Call misstated borrowers' incomes on loan applications.

First Call's president, Carl McFadden, said he believes his company is complying with state regulations and has appealed its case. McFadden said borrowers signed documents verifying their incomes.

Gold Reverse chief operating officer Aimee Alford said it has sold three reverse mortgages in the state, the last in 2007. She blamed "employee error" for a failure to obtain approval to the sell the mortgages. American Advisors and Sun West did not return calls.

Kimberly Blanton can be reached at blanton@globe.com.