In what is a rare event involving reverse mortgages, four people have been indicted in a mortgage fraud scheme involving 14 reverse mortgages totaling $2.5 million dollar.

Although such cases are rare, the report comes at a time when the industry is already fending off negative reports about tax and insurance defaults and the exits of major banks, Bank of America and Wells Fargo.  According to reports, the indictment is the first case of its cased to be filed in federal Southern District Court.

This type of fraud is not about problems with reverse mortgages or the HECM product. It is merely the vehicle chosen by the four alleged criminals to take advantage of the senior homeowners, Genworth and the FHA. 

The three loan officers, Louis Gendason, John Incandela and Marcos Echevarria, took applications and fraudulently inflated appraisals to induce Genworth Financial to fund reverse mortgages on 14 HECM loans. They operated out of offices for 1st Continental Mortgage in Boca Raton and Fort Lauderdale.  Kimberly Mackey, a title and closing agent, then diverted funds from the loans intended to payoff existing mortgages to an account held by two of the men. She operated out of Real Estate One Land Services, Inc in Pittsburgh.  They then created false short sale documents to defraud the existing lenders and further hide the trail of the alleged crime.

According to one report, one of the accused, Incandela, is also currently a defendant in a lawsuit filed by the Federal Trade Commission related to a foreclosure rescue and loan modification scheme.

Unfortunately, the aspect of the story that will receive the brightest spotlight will be that the fraud involved reverse mortgages, rather then on the perpetrators of the alleged crimes. It is difficult to root out this type of fraud when supposed professionals from different disciplines within the mortgage process conspire together to defraud the borrowers and lenders involved. 

The fact that this type of case involving reverse mortgages is rare, due largely to the inherent safeguards and commitment of the people working within it, may get substantially understated in order to stoke fears of senior abuse to create interest in the case.  As the case unwinds, the story will get repeatedly recycled in media, along with the stories of the homeowners as the mortgages get resolved. Some of the homeowners already now face foreclosure, but in light of the fraud, they are receiving assistance from their lender.

The result of this type of case adds to the public relations challenge facing the industry to promote the many positive impacts the product has made.