Method for tapping equity targeted by scam artists

A study conducted by SMR Research Corporation shows that the number of equity-rich seniors is huge and growing fast, according to the Better Business Bureau.

For older homeowners who are looking for a way to tap into the equity they have built up in their homes over the years, a reverse mortgage can be a good solution.

Reverse mortgages allow homeowners to turn their home equity into spendable cash without having to make monthly interest or principal payments. Under a reverse mortgage, the lender sends the borrower money via a lump-sum payout, a line-of-credit or monthly check.

The homeowner is not required to pay back any of the loan advances or interest until the loan term is over. Generally, no repayment is due until the borrower no longer occupies the house.

The Better Business Bureau warns older homeowners who are considering reverse mortgages to be aware, however, that scams and rip-offs are on the increase in this market.

Many senior homeowners who are not only equity-rich, but cash-poor, have become the prime target for fly-by-night telemarketing operations.

Be particularly cautious when approached by telemarketer "service providers" who claim to offer "free information" on how to turn your home equity into cash. In the end, such service providers charge seniors thousands of dollars for doing little more than referring their loan application and personal financial profiles to mortgage lenders and life insurance agents.

These service providers typically try to persuade the homeowner to apply for a large, lump-sum reverse mortgage and to invest most or all of the cash into an annuity sold by an insurance company. This allows the provider to pocket about 8 percent to 10 percent of the loan a referred customer receives, which goes over and above normal loan costs routinely provided by legitimate reverse mortgage lenders and counselors. Usually the customer doesn't know about the hidden fees until the service provider delivers the loan check.

To avoid such referral fees, the Better Business Bureau, along with the National Center for Home Equity Conversion, recommend that senior homeowners follow these rules:

?Never deal with a loan marketer who only wants to talk about one form of reverse mortgage, typically a lump-sum payout. There are other options you can take that may better suit your needs.

?Check the company out with the Better Business Bureau before signing any contract.

?Get independent advice on the quality and performance of any annuity you buy with reverse mortgage cash proceeds.

?No matter what telemarketers might tell you, be aware that taxable annuity payments can reduce your cash benefits from or you could become ineligible for government programs like Supplemental Security Income.

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