Monday, October 08, 2007

Keeping up With Financial Predators

While interviewing Shawna Reeves Nourzaie for another recent posting, I asked her what affect the sub-prime crash has had on her job. Shawna is a social worker at the Fair Lending Project for Seniors of the Council on Aging Silicon Valley. She organizes community education and outreach events about predatory lending and hooks victims up to social and legal services. Up until now, her passion has been on steering folks away from risky loans. Here's what she had to say:

Our educational focus has needed to shift radically. Teaching seniors to avoid risky loan products that no longer exist on the market doesn’t make a whole lot of sense. Our main focus now is identifying seniors who have already been victimized and helping them bring legal claims against predatory lenders and brokers. We also provide them with social work services and help them locate reasonable fixed rate loan products that will allow them to stay in their homes—not an easy task!

We're also providing much more education to seniors about reverse mortgages in light of all the marketing that is targeting them these days. My hunch is that when the credit crunch hit and lenders pulled their riskier sub-prime products, many mortgage brokers shifted their focus to the senior market and reverse mortgages. For some seniors, especially those in ill-health who might need nursing homes soon, the reverse mortgage is a terrible choice because of the high upfront costs and because the loans come due when the homeowners are out of their homes for 12 months.

For other seniors though, including victims of predatory lending who now have monthly loan payments that they cannot afford, the reverse mortgage can be the lifesaver that allows them to stay in the home. They have become the only loan product available to many seniors on fixed incomes. The risker products they were qualifying for just two months ago to get cash out are no longer available, leaving the reverse mortgage as the last product standing.

Keeping up with the various and sundry schemes that profiteers and predators use to exploit the elderly isn't easy. Just when you think you understand one, it's passé.

By the way, if you haven't seen Off the Hook Again: Understanding Why the Elderly Are Victimized by Economic Fraud Crimes, released last year, I recommend you do. Produced by the Consumer Fraud Research Group for WISE Senior Services and the National Association of Securities Dealers (which has since changed its name to the Financial Industry Regulatory Authority, or FINRA), the report describes the findings of a study aimed at understanding 1) what kinds of persuasion tactics cons use in investment and lottery scams and 2) How victims differ from non-victims. The researchers' hope is that identifying specific psychological persuasion tactics is the first step in alerting potential victims. They're also hoping that their work will lead to the development of instruments to measure vulnerability to various frauds.

What they found is that perps tailor their pitches to meet the "psychological needs" of potential senior victims. Perpetrators of investment fraud, for example, may befriend their victims, scare or intimidate them, or vary their techniques. As for who's vulnerable, in the case of investment fraud victims, the results were surprising. Victims were found to be more financially literate than non-victims, which goes against the conventional wisdom that it's naiveté or lack of experience that renders elders vulnerable to financial abuse. Victims were also:

More likely to listen to sales pitches;

More likely to rely on their own experience and knowledge when making investment decisions;

More likely to experience difficulties from negative life events than non-victims; and

More optimistic about the future.

For the full report, click on Off the Hook Again

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