Federal law says no one may require you to buy an insurance policy, annuity or similar product as a condition of getting a federally insured reverse mortgage (HECM), and your HUD counselor may not be paid by anyone selling annuities, investments or long-term care insurance (12 U.S.C. 1715z-20(d)(2)(B) and (o), checked October 14, 2026).
Real frauds: how they work
These are schemes, not products. The Consumer Financial Protection Bureau names two directly (CFPB, What is a reverse mortgage?, last reviewed August 28, 2026):
- Contractor schemes. A contractor knocks on your door, finds "urgent" repairs, and steers you to a reverse mortgage to pay for them. The CFPB says this may be a scam and warns not to be pressured.
- Fake veterans' offers. The Department of Veterans Affairs does not offer reverse mortgages. Ads that promise veterans special deals, imply VA approval or offer a "no-payment" loan are false (same source).
Federal rules also point at a third pattern. Your HECM counselor must ask whether you signed a contract with an "estate planning service firm" that charges a fee at or after closing, and explain that the service may be available free or at nominal cost elsewhere (24 CFR 206.41(b), checked October 14, 2026). Someone charging you a large fee to "find" or "arrange" a government loan is a warning sign.
Some fraud aims at the house itself: a stranger asks you to sign papers you have not read, to put their name on the deed, or to have the loan money sent to them. A real HECM keeps the title in your name (CFPB, same page) and the money goes to you or to pay off your own mortgage.
Legal but aggressive: pitches to slow down on
Most problems are not crimes. They are sales pitches that leave out the costs. When the CFPB reviewed 97 ads and held focus groups with homeowners 62 and older, it found statements that left people thinking reverse mortgages were "a risk-free government program or benefit," that the money did not have to be repaid, or that they could never lose their home (CFPB, A closer look at reverse mortgage advertisements and consumer risks, June 2015).
- "Tax-free money." It is still a loan. Interest and fees are added every month and the balance grows (CFPB, What is a reverse mortgage?, August 28, 2026).
- "You can never lose your home." You can, if you stop paying property taxes or homeowners insurance, stop living there, or let the house fall into disrepair (same source). See reverse mortgage requirements.
- "Use it to buy an annuity or insurance." Borrowing at a compounding rate to buy a product that pays you less than the loan costs is a common way to lose equity. It is illegal to require the purchase (12 U.S.C. 1715z-20(o)). Federal Truth in Lending rules even make the lender count the cost of any annuity bought as part of the deal in the loan's total annual loan cost disclosure (12 CFR 1026.33(c)(1), checked October 14, 2026).
- "Pay off all your debts." The CFPB calls using a reverse mortgage to consolidate debt risky: it swaps one debt for another, possibly more expensive one, and uses equity you may need later (CFPB, Should I use a reverse mortgage to consolidate my debts?, last reviewed June 27, 2023).
- Leaving a spouse off the loan to get a larger amount. A spouse who is not a borrower and does not qualify under HUD's eligible non-borrowing spouse rules may have to pay off the loan to stay after the borrower dies or moves out for more than 12 months (CFPB, Does having a reverse mortgage impact who can live in my home?, last reviewed January 2, 2025).
Your built-in protections
- Independent counseling. Before a HECM, the borrower, any non-borrowing spouse and any non-borrowing owner must be counseled by a HUD-approved counselor (24 CFR 206.41). The counselor may not be paid by anyone who originates, funds or services the loan, or sells annuities, investments or long-term care insurance (12 U.S.C. 1715z-20(d)(2)(B)). Find one through the CFPB housing counselor search or HUD's line at 800-569-4287 (CFPB, last reviewed July 11, 2022). Tell the counselor if a lender tried to sell you anything else; the CFPB suggests exactly that question.
- Full cost disclosure. Lenders must state which charges are required to get the loan and which are not (24 CFR 206.43(a)).
- Three days to cancel. With most reverse mortgages you can cancel for any reason within three business days after closing, in writing; the lender then has 20 days to return what you paid (CFPB, What is a reverse mortgage?, August 28, 2026). This does not apply to a loan used to buy a home (12 CFR 1026.23(f)(1)).
How to check a lender, and where to report
You can look up a mortgage company's or loan officer's license or registration free on NMLS Consumer Access. Ask for the person's and the company's NMLS numbers and check that the names match.
- If you think you were cheated, call your bank or loan servicer first to stop any payment you can.
- File a complaint with the CFPB.
- Report fraud to the FTC at ReportFraud.ftc.gov, and online fraud to the FBI at ic3.gov.
- Contact your state's mortgage regulator or attorney general, and your state insurance department if an annuity or policy was sold.
- If an older relative is being pressured, Adult Protective Services can help; find it through the Eldercare Locator or 1-800-677-1116.
More on related frauds: elder financial abuse.
When a reverse mortgage can make sense
None of this means the loan itself is a scam. For a homeowner who plans to stay put, can keep paying taxes, insurance and upkeep, and wants a line of credit or income without a monthly payment, a HECM can be a reasonable tool, with real costs. The test is whether you sought it out for your own plan, after counseling and after comparing it with downsizing or a home equity loan, or whether someone brought it to you along with something else to buy. Start with how a reverse mortgage works and what it costs.
A plain example: borrowing to buy an annuity
Hypothetical: a 72-year-old draws $200,000 from a reverse mortgage at a hypothetical 7.0% note rate plus the 0.5% annual mortgage insurance premium (HUD Mortgagee Letter 2017-12), and is talked into putting it all in an annuity credited at a hypothetical 4.0% a year. Interest on the loan compounds monthly; the annuity compounds yearly. Fees on both sides are left out, which makes this example kinder than real life.
| Years later | Loan balance | Annuity value | Equity lost to the gap |
|---|---|---|---|
| 5 | $290,659 | $243,331 | $47,328 |
| 10 | $422,413 | $296,049 | $126,364 |
| 15 | $613,890 | $360,189 | $253,701 |
Arithmetic: loan = $200,000 x (1 + 0.075 / 12) to the power of (12 x years); annuity = $200,000 x 1.04 to the power of years. The gap is equity that no longer goes to you or your heirs. Even if the annuity rate were close to the loan rate, upfront loan costs and any surrender charges would still leave you behind.
Red flags
- A contractor who points you to a reverse mortgage to pay for repairs he found.
- Anyone who says a reverse mortgage is a government benefit or is offered by the VA.
- Being told you must buy an annuity, insurance or an investment to get the loan.
- A fee to an "estate planning" or "consulting" firm to arrange the loan.
- Pressure to leave your spouse off the loan so you can borrow more.
- A counselor recommended by the lender who works for the same company, or who also sells products.
- "You can never lose your home" without mention of taxes, insurance, upkeep and occupancy.
- A request to sign papers you have not read, or to add someone to your deed.
- Loan money routed to anyone other than you or your existing mortgage holder.
- Rushing you past the three-day right to cancel or discouraging counseling.
- A lender or loan officer who will not give an NMLS number.
Questions to ask before you pay or share anything
- What is your NMLS number, and the company's?
- Is this a federally insured HECM or a private (proprietary) reverse mortgage?
- Which charges are required to get this loan, and which are optional?
- Am I being asked to buy anything else, now or later?
- Who chose my counselor, and are they paid by anyone involved in this loan?
- What will the loan balance be in 5, 10 and 15 years if I draw this amount?
- What happens to my spouse if I die or move to a nursing home?
- What must I keep paying every year, and what happens if I fall behind?
- How do I cancel within three business days, and to whom do I write?
- Who receives the money at closing, and where is that in writing?
Long-Term Care and Your Home: Read This Before You Sign
A one-page checklist: what Medicare will and will not pay, the Medicaid look-back and estate recovery basics, the questions to ask before you buy long-term care coverage or take a reverse mortgage, and the tax rules if the house is sold. Reverse mortgage costs and the questions to ask, plus the red flags of add-on product sales, before you sign. We’ll email it to you.
The Retirement Literacy Foundation is a 501(c)(3) public charity (EIN 41-5062266). General education, not tax, legal or investment advice. Nothing is sold here. Unsubscribe any time.
Sources
- CFPB: What is a reverse mortgage? (last reviewed August 28, 2026)
- CFPB: A closer look at reverse mortgage advertisements and consumer risks (June 2015)
- Cornell Law School LII: 12 U.S. Code 1715z-20, Insurance of home equity conversion mortgages (checked October 14, 2026)
- eCFR: 24 CFR 206.41, Counseling (checked October 14, 2026)
- eCFR: 12 CFR 1026.33, Requirements for reverse mortgages (checked October 14, 2026)
- eCFR: 12 CFR 1026.23, Right of rescission (checked October 14, 2026)
- CFPB: Should I use a reverse mortgage to consolidate my debts? (last reviewed June 27, 2023)
- CFPB: Does having a reverse mortgage impact who can live in my home? (last reviewed January 2, 2025)
- CFPB: What should I think about before applying for a reverse mortgage loan? (last reviewed July 11, 2022)
- HUD: Mortgagee Letter 2017-12, HECM mortgage insurance premiums and principal limit factors (August 29, 2017)
The Retirement Literacy Foundation is a 501(c)(3) public charity. This page is general education, not tax, legal or investment advice. Nothing is sold here, no product is recommended, and RLF accepts no funding from financial companies. Rules and figures change; each one above shows its source and date. Check anything you plan to act on with your state insurance department or a qualified professional who is not paid on the product.