dduck12,

This appears to be more of an insurance or securities license issue than a reverse mortgage issue. In looking at other articles on this case, the reverse mortgage was OK but few details were presented.

Here is an example of how this could have gotten around the safeguards in place. The borrower gets a fixed rate HECM with $140,000 paid to the borrower at funding. The broker then goes to the borrower and convinces her to give him a check to buy annuities.

Because the broker approached the borrower after the loan was closed, counseling would not have heard about it. Escrow paid the funds to the borrower at closing so the servicer would know nothing about the situation. So what third party could have detected anything wrong? Only her bank but she would have said all the kinds of things that probably not have triggered any response.

If McTaggart had been smart, he would have done direct deposits of the $500 each month. That way not even the borrower would have had any indication that something was wrong unless she somehow became suspicious. If he had been really smart he would have sent her a Form 1099 at the end of the year.

You are exactly right. How many other seniors did McTaggart bilk?

Roger,

“… 4 different entities discuss the pros and cons of purchasing a annuity.” If you will forgive a frank observation, such statements lead to false expectations.

Five documents in our loan package speak to the acquisition of an annuity including the new California disclosure document and counseling checklist. While these documents provide some warnings, they do not provide any information about how to invest proceeds. Normally unless there is an expressed intent to acquire an annuity, little time is spent on the subject other than covering what is contained in the documents. Less than 2% of all prospects I have met with or attendees of seminars I have presented or attended have indicated an interest in acquiring an annuity with proceeds so only on rare occasions do underwriters ever bring up the issue of annuities with borrowers I work with. (Of course, my business model is not built around providing financing for clients of financial advisors.) With all that is covered in the loan process, acquiring an annuity is not a primary focus of discussion.

Even though fixed rate HECMs are very popular, as a closed end mortgage tenure payment and line of credit options are unavailable. Fixed rate borrowers are experiencing the pressure of knowing that the proceeds they received must now be invested at high rates in today’s market to offset the growth in interest and MIP on those proceeds. Since the accruing interest does not offset the earnings on these proceeds for income tax purposes, seniors find themselves looking into investment vehicles that will provide sufficient earnings to offset the income tax liabilities, the accruing interest and MIP along with inflation. Sometimes only a fairly risky investment will provide such earnings.

In cases it is not until the senior actually receives cash out of escrow that annuities suddenly become very appealing. It is during this time of worry and concern that seniors become vulnerable to annuities and other investments. While annuities are not always inappropriate or a bad investment alternative, the current system does not provide the investment education seniors need to make such determinations.

There are few individuals in the reverse mortgage process who have the training to provide the information that the seniors need to evaluate investments. If senior advocates believe that such information should be provided as part of the reverse mortgage process, then like counselors, an independent but fee based investment advisor should be provided and compensated as a separate upfront cost.

Hooray!!!!!! Jailtime for a Thief!!!! Now go after the rest of them and the boys (and girls) on Wall Street (who have stolen millions, not just $140,000).

Just a note for any other annuity salesmen. . . . The representative of the Office of the Inspector General for HUD who spoke at the NRMLA convention stated that any reverse mortgage where all the proceeds are taken out is being reviewed by the IG's investigators. Originators, that means that you should be clear with your borrowers as to the benefits and drawbacks of withdrawing all that cash at one time. If they are paying off a large mortgage, there is no problem understanding the need. Just be aware that Big Brother will be reviewing everything, and, considering the thief who just got sentenced and the others like him, there is good reason for the collective “him” to be looking over our shoulder.

While I agree with Mr. Nelson that Bernie “Made-off ” and other Wall Street crooks who have not been caught should be held to at least the same standard, the Wall Street standard at its essence is legalized gambling — you either know how to play the system or you don't — ergo there are winners and losers. Of course, now that the free market system is shifting, knowledge is relative thing. I am hearing what are thought of as revelations on the part of current economists that in the past (and not THAT distant a past) were considered as a basic understanding of our economic system.

“We learn from history that we learn nothing from history.”

George Bernard Shaw (1856 – 1950)

The only complaint I have about this situation is that the headline should read “Securities Dealer Sent to Prison for Defrauding Senior” as that is the essence of what happened. I had a friend who invested with a local man who was a securities dealer, mortgage broker and real estate broker, became suspicious because the man told him some things that he knew I had told him different (as a mortgage originator) and he questioned me. The shame of it is there were thousands of investors and the guy only spent 12 years in jail. Then he sued the Court Appointed Trustee to get what was left of the assets back – and lost. But my friend still only got back about 12% of what he initially invested and one of the properties alone was worth over $1 million.

I'm glad the guy got caught and that the lady is getting her money back – eventually – but the black eye by the reporter to the RM industry is very misplaced as many people will read and remember the headline and not read the whole article as we did.

Some seniors can’t handle their money correctly. Cognitive impairment is a by product of aging. Not all seniors suffer from it, but a substantial amount do. Professions need to be aware that some of their client, while they appear to be “with it”, actually are impaired to the degree where they can not adequately comprehend the suitability of their transactions. I recommend the reading of The Orbitolfrontal Cortex, Real-World Decision Making, and Normal Aging study (which can be found by googling “The Orbitolfrontal Cortex, Real-World Decision Making, and Normal Aging”) This is a study out of USC and the University of Iowa that found that a sizeable subset of older adults (approximately 35–40%) perform disadvantageously on a laboratory measure of decision making that closely mimics everyday life, by the manner in which it factors in reward, punishment, risk, and ambiguity. These same poor decision makers display defective autonomic responses (or somatic markers), reminiscent of that previously established in patients with acquired prefrontal lesions. The study concludes that poor decision makers are more likely to fall prey to deceptive advertising, suggesting compromise of real-world judgment and decision-making abilities.

What do guys prefer to be first, geriatric psychologists or financial advisers?
Or, both. That's where your heading. In lieu of that, I would suggest doing what the lotteries do; pay out in the form of an annuity (or tenure). This is unfortunately a product flaw (lump sum payout) and will always attract predators to potential victims of any age. More paper work and check off forms won't help much. What may help, is tracking of the money to ensure it, at initially, goes into the right pocket, preferably wired to a monitored checking account. And, after that large payments out should be by wire only (ask the lawyers, I think that is federal) and perhaps monitored for any “inappropriate usage”.