I am pleased that Admin chose to publish this article. There is a very disproportionate fascination with and curiosity about annuities in the RM industry. It is clearly unwarranted.

Many cross-sellers among us tout the benefits of annuities. Some overwhelmed a NRMLA session on annuities and their comparability to HECM tenure payouts in November 2007. Per some of the attendees the speakers eventually began proclaiming the benefits of obtaining commissions on selling both annuities and RMs. Unfortunately at least two of those making these claims were allegedly based in California where such activities have substantial restrictions and those restrictions were not discussed even though the presentation was made in San Diego to primarily California originators. I found it an interesting serendipity that within weeks of that session, Senator McCaskill attacked the sale of annuities with RMs in her December 2007 hearing on RMs.

The fundamental issue that needs discussion is not the benefits of more than one commission source to the originator but rather the overall net benefits to RM borrowers from utilizing RM proceeds to purchase annuities. Of course one must then stratify the annuity market by types of annuities and their features including any penalty provisions. If legitimately discussed, subjects such as 1) longevity risk, 2) annuity provider risk, 3) costs, 4) mitigating risks and their associated costs, 5) income tax liabilities and benefits, 6) fixed term payouts and reduction of benefits, 7) penalty provisions, 8.) impact on Medicaid and other government programs, and 9) net cash flow to the borrower, need to be covered in some depth.

As part of the annuity discussion, the prohibition against requiring the purchase of other products including annuities as mandated by NHA Section 255(o) (the National Housing Act, PL 84-345) when originating HECMs should be fully analyzed. Section 255(o) was added by HERA (the Housing and Economic Recovery Act of 2008, PL 110-289) Section 2122(a)(9) and became fully enforceable on date of enactment, July 30, 2008. Many in the industry incorrectly confuse the firewall and safeguard requirements of NHA Section 255(n)(1)(B) with the prohibition against cross-selling in NHA Section 255(o). Mortgagee Letter 2008-24 only deals with the new requirements on originators as described in NHA Section 255(n) and codified as 12 USC 1715z-20(n.) NHA Section 255(n) has no impact on the prohibition against cross-selling as defined in NHA Section 255(o) and codified as 12 USC 1715z 20(o).