Seniors were sold a risk-free retirement with reverse mortgages. Now they face foreclosure.
In a stealth aftershock of the Great Recession, nearly 100,000 loans that allowed senior citizens to tap into their home equity have failed, blindsiding elderly borrowers and their families and dragging down property values in their neighborhoods.
In many cases, the worst toll has fallen on those ill-equipped to shoulder it: urban African Americans, many of whom worked for most of their lives, then found themselves struggling in retirement.
Alarming reports from federal investigators five years ago led the Department of Housing and Urban Development to initiate a series of changes to protect seniors. Our review of government foreclosure data found a generation of families fell through the cracks and continue to suffer from reverse mortgage loans written a decade ago.
These elderly homeowners were wooed into borrowing money through the special program by attractive sales pitches or a dire need for cash – or both. When they missed a paperwork deadline or fell behind on taxes or insurance, lenders moved swiftly to foreclose on the home. Those foreclosures wiped out hard-earned generational wealth built in the decades since the Fair Housing Act of 1968.
Leroy Roebuck, 86, rode the bus his entire career to a nearby curtain manufacturer. When he needed to make home repairs, he turned to reverse mortgages after seeing an ad on television.
Ten years ago, he forgot to renew his homeowners insurance, which cost about $2,000 a year. Including fees and penalties, his loan servicer says he now owes more than $20,000.
Roebuck’s first foreclosure notice came in the mail six years ago, and he is still fighting to hold on to the brick walk-up he bought from his parents in 1970, living in it through a special health exemption to foreclosure.
I told my son, ‘Never. They ain’t gonna take this house, Roebuck said. I’ll go to the deep blue sea, they’re not going to take this house.
Elderly homeowners and their adult children told similar stories in big city neighborhoods across the USA.
Borrowers living near the poverty line in pockets of Chicago, Baltimore, Miami, Detroit, Philadelphia and Jacksonville, Florida, are among the hardest hit, according to a first-of-its-kind analysis of more than 1.3 million loan records.
Consumer advocates said the analysis supports what they have complained about for years – that unscrupulous lenders targeted lower-income, black neighborhoods and encouraged elderly homeowners to borrow money while glossing over the risks and requirements.
We found that reverse mortgages end in foreclosure six times more often in predominantly black neighborhoods than in neighborhoods that are 80% white.
Even comparing only poorer areas, black neighborhoods fare worse. In ZIP codes where most residents make less than $40,000, the analysis found reverse mortgage foreclosure rates were six times higher in black neighborhoods than in white ones.
The foreclosure disparity resembles a more familiar scenario from the late 2000s, when subprime lenders targeted specific neighborhoods with risky loans doomed to fail, according to the nation’s lead reverse mortgage researcher.
Stephanie Moulton, associate professor of public policy at Ohio State University, said cash-strapped minority borrowers were easy targets for “bad apple” reverse mortgage lenders capitalizing on a market shunned by traditional lenders.
“These areas had demand, and they couldn’t access credit any other way,” she said.
In hundreds of reverse mortgage default cases reviewed by USA TODAY, the homeowners’ original financial needs were basic, the kinds of challenges – house repairs and medical bills – that those with easier access to credit and more disposable income can weather with a second traditional mortgage or home equity loan.
Brokers desperate to replace income lost from the real estate crash with new commissions didn’t wait around for homeowners to come in seeking reverse mortgages, either. They went to where they knew people needed money and sometimes walked door-to-door, targeting houses with decaying roofs or leaky windows. Door hangers advertised a “tax-free” benefit for seniors.
Cherelle Parker, a councilwoman on Philadelphia’s north side, called reverse mortgages a scourge on her community that has put unnecessary financial and emotional strain on seniors. Not only has the area weathered more foreclosures, but the damage cuts deeper.
Now that asset, that equity, is being drained out of some of the most vulnerable communities in America, Parker said. We’ve asked: Why was Philadelphia so targeted to get this loan product? … America should pay attention.
The broader public also pays a steep price. Reverse mortgages are insured by a Federal Housing Administration fund, which is in the red more than $13.6 billion because of an increase in claims paid out to reverse mortgage lenders since the recession.
Federal regulators and industry leaders cautioned that numbers alone tell only part of the story, since many foreclosures result from the natural end of reverse mortgages: the homeowner’s death. The average term of a reverse mortgage is about seven years, and if a family member is not willing or able to repay the loan, lenders push the property through foreclosure.
Regulators said actual evictions of seniors are rare. There’s no way to verify that, though, since HUD, the top government regulator of Home Equity Conversion Mortgage loans, does not sign off on evictions – or even count them.
A foreclosure is a failure, no matter the trigger, said Sandy Jolley, a California consumer advocate and whistleblower who helped the government secure an $89 million penalty against reverse mortgage companies two years ago.
For HUD or anyone else to say that people dying and foreclosure is the natural end to a reverse mortgage is ridiculous, Jolley said. No consumer gets into one of these thinking, Eventually my home will go into foreclosure. All foreclosures are unnecessary, and this increase indicates a failure of the program to deliver on its promise.
How reverse mortgages work
Reverse mortgages were invented in 1961 by a Maine lender trying to help a widow hold on to her home. The concept was piloted by the Reagan administration and exploded in popularity in the 2000s as a way for seniors to “age in place.”
They work like this: Lenders appraise the value of a house and allow homeowners to borrow back money against that market value.
Borrowers can stop making monthly mortgage payments, and they can stay put for life, so long as they maintain the home and pay property taxes and insurance. For years, reverse mortgages required no credit check and government-mandated financial counseling can be as easy as a 20-minute phone call.
At the end – a move out, death or default – the bank calls the loan due, to be paid back either by the sale of the home or an heir or homeowner repaying the loan money. Lenders and their investors make their money through origination fees that can top $15,000 with fees and mortgage insurance, and by charging interest on the loan balance.
For many homeowners, reverse mortgages are relatively safe, because the borrower is insulated from ever owing more than the initial appraised value of their home.
Problems emerged in the wake of “full-draw” loans in the late 2000s, when reverse mortgage lenders issued a lump sum to a borrower. Sales picked up as Americans began struggling financially and property values eroded.
Since reverse mortgages assume the home will continue to appreciate, loan balances in some cases ballooned well past the market value of a post-recession home. Inflated appraisals also played a role.
Leroy Roebuck’s home was appraised at $112,000 in 2008. That allowed him to take out up to $83,000 in equity. By the time he was solicited for a second reverse mortgage, an appraiser said it was worth $241,000, allowing him up to $163,000 more. He borrowed $102,000 in all.
The 104-year-old house near Temple University is worth far less today, about $165,000.
At the National Reverse Mortgage Lenders Association, President and CEO Peter Bell said ideal borrowers didn’t always match up with those targeted.
We’re paying for an era where people were borrowing to survive, Bell said. We now look for people that are comfortable in their retirement with a plan and resources to maintain their basic obligations – but could use a little extra help for a particular need or quality of life.
The scar reverse mortgage failures leave on neighborhoods can be seen on a drive through Chicago’s South Side with longtime resident and community organizer Pat DeBonnett. A cluster of six ZIP codes together have endured more than 1,000 reverse mortgage foreclosures over the past five years – higher than many entire states. Boarded up homes and empty parcels followed.
DeBonnett points out blocks in the Roseland area as “absolutely devastated.”
Yale and 113th fits that description. In the 60628 ZIP code, it is the epicenter of the reverse mortgage foreclosure crisis, where more homes have been seized than anywhere else in the nation.
The house at the end of the block that abuts train tracks is intact, but many others along the leafy green street are either boarded up or vacant.
Empty single-family and bungalow-style houses dot many of the blocks in neighboring Pullman, a comparatively prosperous neighborhood that is home to the A. Philip Randolph Pullman Porter Museum. Named for the fabled labor leader, the museum honors black workers’ contributions to American history.
Lori Frazier pauses to reflect for moment while looking through her parents’ home. After Frazier’s father passed away, she and her family were surprised to discover that her parents had taken out a reverse mortgage on their home. She had hoped to move into the house with her son, Amari, after her parents died, but cannot afford to pay off the large reverse mortgage.
About 13,000 seniors live in the 60628, where lenders wrote about 760 reverse mortgages at the height of the program, through 2009. The loan origination rate – about 57 per 1,000 senior residents – is more than five times the national average. The foreclosure rate is even worse: more than nine times the average.
After foreclosing on a reverse mortgage, the Cook County Chancery Court taps people such as private attorney Gerald Nordgren to investigate who might have a claim to the house or be interested in buying it. For many family members, a conversation with Nordgren is the first they learn their parents signed reverse mortgage documents a decade ago.
Adult children that have been trying to take care of their mother or father or both get the idea that …When mom or dad passes, I’m going to have a little inheritance or get this place on the market, Nordgren said. Then the death happens and … here comes the foreclosure.
That’s what happened to Lori Frazier, whose father, Charles, died at 88 of a heart attack in the family home a few miles west of Roseland, in Beverly. At that point, in December 2017, an unpaid $4,351 property tax bill led to the default.
Frazier tried to negotiate with the lender. Then her mother, Osie, died last May.
The loan servicer, Celink, filed a foreclosure lawsuit on the three-bedroom 1920s brick home. It had been in the family since 1974, after Osie came north from Mississippi and met Charles in Chicago.
Celink told Frazier in February that she could buy the house by paying off the loan’s balance: $209,053, including fees and interest. Frazier and her brother said it’s far more than they can afford to pay.
The impending loss of the house she grew up in weighs on Frazier, her children and grandchildren. Until the foreclosure is finalized, they have access to retrieve belongings.
As she packed, Frazier relived memories of a home filled with jazz music, playing in the cul-de-sac with children from other young families and sneaking out at night to visit her high school boyfriend.
Her older daughter, Antoni, shares her mother’s ache. As she tried on one of her grandmother’s winter coats at the house on a brisk morning in February, she recalled annual block picnics and holiday celebrations.
It’s devastating to hear that no one can save it; all those years and everything they worked for, she said. They were retired and living on a pension. What happened?
The Frazier family foreclosure is not happening in a vacuum. Each foreclosure depresses home values within about 600 feet by 1%, according to a study in 2006 in the journal Housing Studies. As foreclosures mount, the study says, that figure compounds.
Five foreclosures in a few city blocks means a 5% loss for every neighbor.
Patricia Blair says she found her husband, Richard, in their bed after he died from heart problems in 2016. She says she thinks of that day every time she goes to bed.
Twenty Charged in Southern District of Florida as Part of Largest Elder Fraud Sweep in Department of Justice History
Attorney General Jeff Sessions and U.S. Attorney Benjamin G. Greenberg for the Southern District of Florida announced the largest ever coordinated sweep of elder fraud cases in the Department of Justice’s history involving more than 250 charged defendants around the globe who victimized more than a million Americans, most of whom were elderly.
The cases include criminal, civil, and forfeiture actions across 50 federal districts. Of the defendants, 200 were charged criminally. In each case, offenders engaged in financial schemes that targeted or largely affected seniors.
In total, the charged elder fraud schemes caused losses of more than half a billion dollars. In the Southern District of Florida a total of 20 defendants were charged with offenses relating to their participation in various fraud schemes involving over $103 million.
Antonio J. Gomez, Inspector in Charge, U.S. Postal Inspection Service (USPIS), Mark Selby, Special Agent in Charge, U.S. Immigration and Customs Enforcement’s Homeland Security Investigations (ICE-HSI), Brian Swain, Special Agent in Charge, U.S. Secret Service (USSS), and Robert F. Lasky, Special Agent in Charge, Federal Bureau of Investigation (FBI), Miami Field Office, join in the announcement.
The actions charged a variety of fraud schemes, ranging from mass mailing, telemarketing and investment frauds to individual incidences of identity theft and theft by guardians. A number of cases involved transnational criminal organizations that defrauded hundreds of thousands of elderly victims, while others involved a single relative or fiduciary who took advantage of an individual victim. The schemes charged in these cases caused losses to more than a million victims.
“The Justice Department and its partners are taking unprecedented, coordinated action to protect elderly Americans from financial threats, both foreign and domestic,” said Attorney General Sessions.
“Today’s actions send a clear message: we will hold perpetrators of elder fraud schemes accountable wherever they are. When criminals steal the hard-earned life savings of older Americans, we will respond with all the tools at the Department’s disposal – criminal prosecutions to punish offenders, civil injunctions to shut the schemes down, and asset forfeiture to take back ill-gotten gains. Today is only the beginning. I have directed Department prosecutors to coordinate with both domestic law enforcement partners and foreign counterparts to stop these criminals from exploiting our seniors.”
“We cannot allow our elderly and vulnerable citizens to continue to be the target of fraud schemes. For that reason, the U.S Attorney’s Office and its law enforcement partners – criminal and civil – have joined forces to combat Florida-based fraud schemes victimizing the elderly in our community and throughout our nation,” stated U.S. Attorney Benjamin G. Greenberg. “We will bring to justice those who target the elderly and defraud them out of their life savings.”
“The U.S. Postal Inspection Service will continue to work tirelessly with our partners both in the U.S. and abroad, to ensure that the Postal Service is not used to perpetuate predatory schemes that target the elderly,” said Antonio J. Gomez, Inspector in Charge, U.S. Postal Inspection Service, Miami Division. “Today’s operation is a great example of how law enforcement from all over the world is working together to that end.”
“We will not allow criminals to target some of the most vulnerable members of our community and take away what they have worked a life time for,” said Mark Selby, Special Agent in Charge of HSI in Miami. “HSI is committed to working with local, state, federal and international law enforcement partners to bring these individuals to justice.”
“The U.S. Secret Service remains committed to investigating cyber based criminal schemes,” said Special Agent in Charge Brian Swain, U.S. Secret Service Miami Field Office.
“Unfortunately, elderly citizens are sometimes vulnerable to financial exploitation by unscrupulous fraudsters bent on making ill-gotten gains,” said Robert F. Lasky, Special Agent in Charge, FBI Miami. “In this case, the alleged swindlers used a variety of scams to collect and then launder over $94 million. The FBI and our partners are continuously adapting our investigative techniques to bring to justice offenders who take advantage of the elderly.”
The following cases from the Southern District of Florida were charged between February 2017 and February 22, 2018:
1. United States v. Claude Shaw, Case No 17-60056-CR-Dimitrouleas
On February 21, 2017, Claude Shaw, 50, of Miramar, was charged with two counts of mail fraud and 10 counts of wire fraud in connection with a fraudulent lottery scheme tied to Jamaica. Shaw pled guilty to one count of mail fraud and on June 2, 2017, was sentenced to 36 months imprisonment, to be followed by three years supervised release. Shaw was also ordered to pay $128,440 in restitution.
According to court documents, between September 2013 and August 2015, Shaw participated in a scheme where victims throughout the United States received telephone calls that falsely informed such victims they had won over $1 million in a lottery, which required such victims to pay money in advance in order to secure their prize. The victims were instructed on how, and to whom, to send their money, which included an instruction to send their money to Shaw. Victims sent over $100,000 to Shaw, who then forwarded a portion of the money to Jamaica. Victims never received any lottery winnings.
Mr. Greenberg commended the investigative efforts of the USPIS. The case was prosecuted by Trial Attorney Arturo DeCastro with the Consumer Protection Branch of the Department of Justice Civil Division.
2. United States v. Marvin Damian Coote, Case No. 17-14041-CR-Marra
On May 30, 2017, Marvin Damian Coote, 36, of Fort Pierce, was indicted on conspiracy to commit mail and wire fraud and wire fraud among other charges. Coote pled guilty and was sentenced on December 1, 2017, to 41 months imprisonment, to be followed by three years supervised release. Coote was ordered to pay $225,995.68 in restitution.
According to court documents, between March 2011 and May 1, 2017, Coote participated in a mail and wire fraud conspiracy in St. Lucie County in which, like the Shaw matter described above, co-conspirators telephoned victims to notify them that they had won a lottery that required such victims to send payment in advance in order to secure their prize. Victims paid fees of several hundred to several thousand dollars in order to collect their purported lottery winnings. The conspirators kept the victims’ money without paying any lottery and sweepstakes winnings. Victims targeted in this scheme were elderly individuals, typically over the age of 70. The financial transactions that were part of the scheme included the use of United States Postal Service, MoneyGram, Western Union and Green Dot cards.
Mr. Greenberg commended the investigative efforts of USPIS, ICE-HSI and the St. Lucie County Sheriff’s Office. This case was prosecuted by Assistant United States Attorneys Marton Gyires and Stephen Carlton.
3. United States v. Christian Villalobos Hernandez, Case No. 18-20052-CR-Martinez
Christian Eduardo Villalobos Hernandez, 35, of San Jose, Costa Rica, was indicted on January 25, 2018, for conspiracy to commit mail fraud, mail fraud, conspiracy to commit money laundering, international money laundering and money laundering. According to the Indictment, starting in or around February 2015 through in or around August 2017, several Costa Rican and Venezuelan citizens, including Hernandez, Andres Pacheco Fonseca (“Fonseca”) and other known co-conspirators, devised and implemented a scheme to unlawfully enrich themselves by contacting victims by telephone, letter or fax and falsely informing them that they had won millions of dollars in a lottery or sweepstake.
As alleged, the conspirators persuaded victims through false and fraudulent representations that in order to collect their winnings they had to send by mail and wire transfer large amounts of cash and money orders to addresses in Miami, Costa Rica, and elsewhere, and to have those same funds deposited in corporate and personal bank accounts the conspirators controlled here in the United States. Within days, the victims’ funds were sent by wire transfer from the corporate and personal accounts located in the United States to corporate and personal bank accounts in Costa Rica that were controlled by Hernandez, Fonseca, their co-conspirators, and their family and friends. In total, approximately $9 million was sent by wire transfer from their accounts in the United States to corporate and personal bank accounts they controlled in Costa Rica.
Mr. Greenberg commends the investigative efforts of USPIS. This case is being prosecuted by Assistant United States Attorney Maurice Johnson.
4. United States v. Tiffany Strobl, Case No. 17-60128-CR-Dimitrouleas
Tiffany Strobl, 38, of Ohio, was charged for bank fraud, wire fraud, use of an unauthorized access device and identity theft in connection with a scheme to defraud an elderly victim. According to court documents, Strobl used a stolen identity to open a bank account at TD Bank and then deposited $5,000 into that account. Those funds came from an 81 year-old woman living in Iowa who Strobl contacted in February 2017. Strobl informed the victim that her grandson was in jail and requested the victim to wire $5,000 to a TD Bank account so that her grandson could post bond. The victim complied and later learned that her grandson had never been arrested and had not called her for money.
Strobl pled guilty in October 2017, and was sentenced to 24 months imprisonment, to be followed by one year supervised release and ordered to pay $9,548.25 in restitution.
Mr. Greenberg commended the investigative efforts of the USSS. This case was prosecuted by Assistant United States Attorney Anita White.
5. United States v. Tiffany Strobl, Case No. 17-60066-CR-Dimitrouleas
In March 2017, Tiffany Strobl, 38, of Ohio, was charged with possession of false identification documents and bank fraud. In mid-February 2017, a victim saw an advertisement for a mobile home on Craigslist that was purportedly being sold by an individual out of Salt Lake City, Utah. The victim communicated with the seller via email and text message and was to pay $6,800 for the mobile home through a website called Ebay Motors. The victim initiated a wire transfer for the purchase of the mobile home through a link on Ebay Motors that was linked to a BB&T Bank account number. Strobl had opened the BB&T account using false and fraudulent identification documents. Strobl attempted to withdraw the funds deposited into the account by the victim who, when contacted by the bank, instructed the bank to stop the transaction because he had subsequently seen on Craigslist the same mobile home for sale in Kansas. A search of Strobl’s book bag incident to arrest, revealed six driver licenses, each bearing the same photograph of Strobl, but with different names, dates of birth, and license numbers.
After a guilty plea, Strobl was sentenced in June 2017, to five months imprisonment, to be followed by three years supervised release.
Mr. Greenberg commended the investigative efforts of USSS. The case was prosecuted by Assistant United States Attorney Anita White.
MONEY LAUNDERING OF SCAM PROCEEDS
6. United States v. Roda Taher, et al, Case No. 17-60223-CR-Ungaro
United States v. Luis Pujols, Case No. 17-20702-CR-Martinez
One indictment charged Roda Taher, 38, of Beirut, Lebanon, Geanis Gonzalez, 31, of Peyton Colorado, Alfredo Tovar, 36, of Miami Gardens, Quiana Velasco, 35, of Miami, Jose Daniel Estrella, 38, of Hallandale, Pedro Reyes, 38, of Hialeah, Robinson Castillo, 32, of Pembroke Pines and Jamie Vices Castillo, 41, of Pembroke Pines, with conspiracy to commit money laundering, conspiracy to commit bank fraud, money laundering, and conducting transactions in criminally derived property. Hanan Jaafar, 26, of Beirut Lebanon, is also charged with conspiracy to commit money laundering and conspiracy to commit bank fraud.
According to the Indictment, from 2008 to the present, Taher managed and supervised a criminal organization engaged in money laundering and transactions in criminally derived property that received approximately $94 million in fraudulent proceeds. The organization utilized bank accounts opened in the names of shell corporations to receive the proceed of various fraudulent schemes, including romance frauds, email hacking schemes, inheritance and lottery scams that victimized individuals, including elderly individuals, as well as corporations. Taher would recruit individuals to act as “money mules,” establishing the shell corporations in the money mules’ names. The defendants would then have the money mules open bank accounts throughout South Florida in the names of their shell corporations, instructing the mules to falsely represent to the banks that the shell corporations were legitimate businesses engaged in the import, export, or sale of various goods. Once the bank accounts received money wired from a fraud victim, the defendant would instruct the money mules to wire money to other accounts overseas.
A second indictment charged Luis Angel de Jesus Alfonseca Pujols, 24, of Sunrise, Gary Alberto Camillo, 26, of Pembroke Pines, Jean-Phillipe Etienne, 25, of Pembroke Pines, Randy Eliessel Santos, 29, of Hollywood, and Cosme Daniel Enrique Vasquez, 36, of Miramar, with conspiracy to commit bank fraud and wire fraud, international money laundering, money laundering and bank fraud. Karina Marie Ocasio, 24, of Weston, is also charged with conspiracy to commit money laundering, conspiracy to commit bank fraud and wire fraud, money laundering, and bank fraud.
Alberto Camillo, Jean-Phillipe Etienne and Randy Eliessel Santos have pled guilty.
Mr. Greenberg commends the investigative efforts of the FBI, USSS and ICE-HSI. This case is being prosecuted by Assistant United States Attorneys Jared Strauss, Michael Walleisa and Dwayne Williams.
A criminal complaint, information or indictment is a charging instrument containing allegations. All defendants are presumed innocent, unless and until proven guilty in a court of law.