Reverse home mortgages were designed to provide older homeowners with financial independence in the years following their retirement, when the need to supplement their incomes may arise. Unfortunately, some people are taking advantage of the homeowners who are eligible for this type of financing, and we are seeing some cases of mortgage fraud occurring. The Federal Grand Jury recently indicted three men on charges of conspiracy and financial institution fraud after they tried to profit from a reverse home mortgage fraud scheme. After sentencing, these men could receive extensive prison sentences, as well as large fines.

The harsh punishments these men could receive show just how seriously the U.S. Department of Housing and Urban Development is taking these crimes. Legislation has been passed in several states to make further strides toward preventing more mortgage fraud in the future. In addition to these efforts, older homeowners can prevent becoming victims of mortgage fraud by knowing exactly what to expect from this loan program.

How This Mortgage Should Work

This loan can be used for a home purchase, to refinance a current mortgage, or just to cash out equity. With this type of financing, a homeowner does not make any payments toward the loan for as long as he or she resides in the home and meets the requirements of the loan. These requirements include staying current on homeowner's insurance, property taxes and any necessary home repairs. If a homeowner meets these requirements, he or she will not be responsible for any amount exceeding the loan amount once the loan is due.

If a homeowner has enough equity in his or her home, it can be converted into cash. A homeowner can spend the cash on any expenses they choose and the money received is not considered taxable income. The amount of money a homeowner can receive depends upon his or her age, home value and current interest rates. There are different disbursement options a homeowner can choose from, including monthly payments, a line of credit, a lump sum, or a customized combination plan.

Mortgage Eligibility

To qualify for this type of financing, a borrower must be financing their primary residence and be at least 62 years old. This loan does not have minimum credit score or income requirements, so more homeowners are likely to qualify.

All homeowners must attend loan a counseling session before they can take out a reverse home mortgage. The counselor will let the homeowner know what to expect from his or her loan and can answer all of his or her reverse home mortgage questions. Then a homeowner can decide if this loan is the right financing option for him or her.

Do Not Be a Victim

Homeowners should not have to pay for any information. Any reverse mortgage information a homeowner could need is available for free from qualified loan specialists and on the U.S. Department of Housing and Urban Development's website. A homeowner should thoroughly research the lender he or she chooses to ensure that he or she is reputable. A lender should be able to answer all of the homeowner's questions, as well as inform him or her of all the costs associated with the loan.

It is important to note that most lenders want to help older homeowners, not hurt them. This type of financing can be a great solution for older homeowners who are looking for ways to supplement their incomes or improve their lifestyles. While the U.S. Department of Housing and Urban Development continues to work hard to protect homeowners from reverse mortgage fraud, homeowners themselves should also utilize the many resources that are available to ensure that they become satisfied borrowers instead of victims.