Last week Generation Mortgage Company announced a new set of policies and procedures that apply to purchases of other financial products using reverse mortgage proceeds. Jeffrey Lewis, Chairman of Generation Mortgage said, “The media has appropriately focused of late on the abusive practices of some of our competitors, who have aggressively sold inappropriate products to new reverse mortgage borrowers. In most cases, these purchases would have been unsuitable whatever the source of funds.”
What I find interesting is that Generation states there is a clear distinction between suitable and unsuitable products for seniors.
Products that are designed for long-term wealth accumulation for younger adults, and which impose surrender or withdrawal charges, are considered unsuitable for reverse mortgage borrowers, and seniors in general. Examples of such products include both fixed and variable deferred annuities with surrender charges and long-term bank certificates of deposit with early withdrawal penalties.
Products which address the needs and risks seniors face, such as provisions for lifetime income and long-term care needs. Immediate annuities and long-term care insurance, properly designed and purchased, address these needs and risks and remain suitable choices for some seniors.
The press release states that they will counsel against the purchase of these products, so it doesn’t sound like they are banning the use of the “unsuitable products”. While I applaud Generation for taking a stance on the issue, is it the job of the reverse mortgage lender to make financial distinctions for the borrower in terms of what’s suitable and what’s not?
Last week a reverse mortgage regulation legislation in Arizona was stalled in part because some lawmakers question what level of protection the state should provide to keep people from making bad financial decisions. I agree with the lawmakers concerns because there is only so much that can be done without making decisions for the borrowers.
What are everyone’s thoughts on how much regulation is needed? Leave your comments below.