Mass. cracks down on 5 reverse mortgage firms
The state Division of Banks has ordered five companies to stop peddling reverse mortgages to elderly homeowners, charging they are not properly licensed to sell the product in Massachusetts.
Reverse mortgages allow seniors to take a loan on their homes to be paid back when they sell the property or die - a helpful financial instrument for some seniors. But such loans are sometimes used as tools for fraud that leave elderly property owners without the money or their homes.
The Division of Banks this week ordered the following companies to stop doing business in Massachusetts until they obtain a license: Eldervantage LLC in Minnesota; Lender 411 LLC in California; Senior Reverse Mortgage Online in Texas; and in Nevada, Reverse Mortgage Helpdesk and Reverse Mortgage Site. None of these companies are accused of fraud.
“We’ve asked them to sign an affidavit indicating they have stopped these practices,’’ said David Cotney, the state banking commissioner. “In addition, if they are licensed in other states, we will notify regulators [there] that they are operating in Massachusetts illegally.’’
Representatives at both Lender 411 and Senior Reverse Mortgage Online said they had not received the order from the state to cease activity. But they added that they are referral services, not lenders.
“We connect consumers who are looking for mortgages with professionals,’’ said Rocky Foroutan, of Lender 411.
The other companies did not respond to requests for comment.
The state has increased its scrutiny of reverse mortgage lenders in recent years, as the recent recession and housing crash have left some homeowners struggling to make ends meet. Since 2009, the banking division has issued 24 enforcement actions related to reverse mortgages, which are for homeowners in their 60s and older.
Some questionable lenders and brokers are “basically promising people they can have free money to take vacations,’’ said Cotney. “They’re promising people that they won’t be kicked out of their homes, or foreclosed on.’’
Reverse mortgages can be useful in some situations, advocates say: maybe a senior on a fixed income needs financial help to remain in his or her home a bit longer, or to pay a large medical expense.
The state doesn’t track reverse mortgages, but in the first six months of the year just under 1,200 reverse mortgages had been approved in Massachusetts through a federal program that insures the loans, according to the US Department of Housing and Urban Development.
State officials and consumer advocates, however, warn that reverse mortgages can be complicated, and are not appropriate for most elderly homeowners.
“If you have a discreet, concrete need for the money you would get from the reverse mortgage - other than just wanting it - then it can be a good thing,’’ said Margot Saunders, a lawyer for the Boston-based National Consumer Law Center. “The problem is that people are often sold reverse mortgages who don’t need the money from their house at that moment.’’
Starting in August 2012, Massachusetts law will require anyone interested in a reverse mortgage to get face-to-face guidance from a state-approved, independent counselor. One common problem: Seniors sometimes don’t realize that if they fall behind on tax payments or home repairs, they could default on the mortgage.
“We certainly advise seniors: Don’t make these decisions in isolation,’’ said Barbara Anthony, the state’s undersecretary for Consumer Affairs and Business Regulation.
Face-to-face counseling is a must to get an accurate assessment of a person’s living and financial situation, said Len Raymond, founder of Homeowner Options for Massachusetts Elders, a Lowell group that offers such guidance statewide.
But Peter Bell, president of National Reverse Mortgage Lenders Association, a Washington trade group, questioned whether face-to-face counseling makes sense in all situations. In many cases, phone counseling is effective and more practical. Still, he said, anyone considering a reverse mortgage needs to do their homework.
“They need to take counseling seriously, whether they do it face-to-face or over the phone,’’ he said. “They need to pull their personal information together before they go see the counselor, and they should be candid with the counselor about their expectations and concerns.’’