The Financial Crimes Enforcement Network (FinCEN), in consultation with the U.S. Department of Housing and Urban Development's (HUD) Office of Inspector General (OIG), has issued an advisory to highlight reverse mortgage fraud schemes potentially related to the Federal Housing Administration's (FHA) Home Equity Conversion Mortgage (HECM) program.
The advisory is intended to help financial institutions better assist law enforcement when filing suspicious activity reports (SARs).
With the recent difficulties within the housing market, the ability of homeowners to access existing home equity quickly through the HECM and other reverse mortgage programs may be increasing their attractiveness as a target for financial fraud, FinCEN cautions. Its advisory contains examples of common fraud schemes and suggests key words for financial institutions to use when completing SARs involving fraud related to the HECM program.
‘The most troubling aspect of HECM fraud is that it takes advantage of senior citizens who have worked hard over their entire lives to own their homes," says FinCEN Director James H. Freis Jr. "To combat these frauds head-on, FinCEN is working closely with HUD's Inspector General and the Secret Service to proactively identify hot-spots of suspected HECM and other mortgage fraud activity and directly provide to law enforcement a more defined battleground to direct their resources.’
The following trends and schemes were reported in FinCEN's guidance:
- cross-selling (the theft of a senior's HECM loan proceeds through cross-selling of financial products in violation of HUD rules);
- cash-out theft (the theft of reverse mortgage proceeds by individuals whom the senior trusts, including family members, care takers and loan officers);
- property flipping;
- fake down payments involving the HECM for Purchase program;
- distressed non-senior mortgagors asking senior parents, other family members or friends to take a HECM loan for them; and
- perpetrators using power of attorney for a senior to apply for and close HECM loans without the full knowledge or participation of the victim.
This advisory supports the efforts of the Financial Fraud Enforcement Task Force, the U.S. Department of Treasury's broader initiatives to ensure that U.S. financial institutions are not used as conduits for illicit activity, and a FinCEN and HUD OIG mortgage fraud initiative.