Tracy Press

Debbie George knew her business could be hurt after she heard about a possible real estate scam that involved the promise of a reverse mortgage.

George is branch manager of American Pacific Mortgage in downtown Tracy, one of six loan companies in town authorized by the federal government to offer reverse mortgages.

Like others in the business, she was skeptical of reverse mortgages until the Department of Housing and Urban Development put stronger regulations on these types of loans in the 1990s.

It’s still a small part of the local loan business.

“In Tracy, there doesn’t seem to be a large number of people interested,” she said. “I think it’s mostly out of fear. They worry that the bank wants to take their house, and that’s not it.”

The case that caught the attention of Tracy police and the San Joaquin County District Attorney’s office involved the sale of a house, though investigators allege, among other things, that Michael Llamas of Mountain House represented the deal as a reverse mortgage.

Llamas’ company, Property Line Investments, is not on the list of HUD-approved reverse mortgage lenders.

Local mortgage brokers said reverse mortgages are the same as regular mortgages: A homeowner takes out a loan based on the value of the house and maintains the title to the house while the lender holds a lien on the property.

In a standard mortgage, a lender provides the money up front to buy the house. In a reverse mortgage, the amount of the loan grows as the lender makes regular payments to the property owner.

The amount of the loan can be up to 55 percent of the value of the property, and monthly payments depend on the borrower’s age. The minimum age is 62, but older borrowers tend to get bigger monthly payments.

The loan is paid off when the borrower dies and the house is sold or refinanced.

Bronwyn Belling, reverse mortgage specialist at AARP Foundation in Washington, D.C., said other safeguards are built into federal regulations to make sure lenders are legitimate and borrowers know what they will get.

“If it was a federally insured reverse mortgage, they have to give a list of five HUD-approved counseling agencies,” she said. “There is a piece of paper that has to be signed by a counselor before it could be processed by the lender.”

Belling said AARP’s studies of senior housing needs show that as people grow old they want to stay in their homes.

“That’s the beauty of reverse mortgages, because it gives them money to make home repairs and meet day-to-day needs.”

She added that people often become interested in reverse mortgages when they need cash to pay for repairs on aging houses. But the loan fees, which can be between $15,000 and $20,000, means people who have pensions or other reliable income should not take on a reverse mortgage just to cover short-term needs.

Janis Rainey, manager of Mission Hill Mortgage in downtown Tracy, said a reverse mortgage is a practical option for elderly people who otherwise wouldn’t have much income.

“My whole thought on reverse mortgage has changed because I helped people get them and they couldn’t be happier,” she said. “If the house goes to a family member, the son or daughter can refinance or sell it and pay off the reverse mortgage.”

George added that to become a HUD-certified reverse mortgage broker she had take classes. HUD and her parent company also closely scrutinized her first four reverse mortgages.

“Even after that the loans are very strictly monitored by not only the company but by HUD also.”

She added that federal involvement not only regulates interest rates and fees, it also ensures that people maintain ownership of the house.

“If the person lives longer than the loan amount, then HUD takes over the payments,” she said.

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