Generation Mortgage’s Stance on Using Reverse Mortgage Proceeds to Purchase Financial Products

image 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. 

Unsuitable products
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.

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Suitable products
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.

Generation Mortgage Adopts Product Policies (MortgageOrb.com) 

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  • Actually, I’m wondering why Generation Mortgage waited so long to take a stand and create a policy like this. Most of us have had policies in place regarding NOT funding annuities with reverse mortgage proceeds for years.

    I do think it is up to each lender to clearly state their policy on the use of reverse mortgage funds with regard to purchasing financial products. However, no lender will ever be able to fully control how reverse mortgage proceeds are used once the senior has left the closing table.

    How would we ever know what a client ends up using the funds for? Gambling? Savings? Paying off credit card debt? Buying an inappropriate annuity 6 months after the reverse mortgage transaction takes place from someone completely unrelated to the reverse mortgage transaction?

    Hopefully, they have been given some good direction by a trusted advisor, and not someone only interested in making a buck on a commissioned product.

    Lenders will always protect themselves by having strict policies regarding the use of these funds. I’m not sure how far the government can really go with such legislation with regard to consumer protection or if it even makes sense.

    Valerie VanBooven RN BSN
    http://www.ngfs.net
    http://www.ultimateseniorservice.com

  • Valerie,

    I agree most lenders already have policies like this in place but from what I’m hearing many originators are looking for the government to step in and regulate the funding of financial products with reverse mortgage proceeds.

    I understand where they are coming from but I think this could be a little much.

    John

  • Hey John,

    I don’t have a problem with lenders taking a stance in this regard. If the lenders would have taken a stronger approach to self regulation in the last few years we wouldn’t be in the mess we are now and the government would have no reason to interfere.

    I would much rather see lenders trying to clamp down on abusive behavior than the government. Maybe if companies take an active role in protecting their borrowers the government will just leave it alone. And really I would think it’s in the best interest of the lenders to make sure the borrowers aren’t taken advantage of.

    Some lenders,( Washington Mutual) in the forward markets, have taken a more aggressive stance about double checking with borrowers to make sure brokers explained everything properly about the costs and it’s been working ok. The only brokers that complained about it were the ones who were trying to be sneaky in the first place.

    Anyways, great article and I’m sure this will be an interesting discussion.

    Rogan McGillis
    http://www.reversemortgagecity.com/blog

  • It’s called being proactive— and is a smart decision on the part of Generation Mortgage. It’s clear to see the growing “headline risk” for the reverse mortgage industry. We need more lenders—and our leaders from NRMLA—taking this approach. I’d call it offering education to the borrowers and control to the predatory salespeople.

  • I think that there are NO suitable financial products that shouldl be “Sold” to Reverse Mortgage borrowers. Any annuity is ridiculous as the Reverse Mortgage has its own built-in annuity with the tenure payment option.
    LTC insurance is a whole different story, because almsot anyone using the proceeds to buy a LTC policy probbaly wanted the insurance and is only taking the RM to get the funds they need. I don’t consider that a “sell.”
    I think it should be illegal for an RM loan officer or lender to take a commision on any other product that the borrower may purchase with the proceeds.

  • I think Generation’s approach is a good first step. I agree with Michael Pinter that it should be illegal for a RM loan officer or lender to take any commission on any other financial product that the borrower may purchase with the proceeds. While it is not currently illegal, NRMLA should step up to the plate and make it unethical. And HUD could make rules that do not allow this, just as they have rules that do not allow you work in any real estate related field while originating HUD mortgages. Even these reforms would not take care of the whole problem but they would be a good start.

  • Thanks for the article. I have three thoughts. One, I completely agree with the points made regarding suitability of products for all seniors. Suitability, however, is a case by case problem. What may be right for one may not be right for all. There is always more than one issue facing a client. It may be financial, family, health, estate, etc., or some combination of all. This is likely what is holding up the Arizona legislators. Laws, no matter how broadly conceived, typically miss all but the narrowest of intended marks. In other words, it is impossible to regulate life and behaviors. I am quite certain, even if some form of legislation is passed, there will still be bad actors preying on unsuspecting seniors.
    Second, liquidity and flexibility are major keys to successful senior and estate planning. Again, these things have different meanings for each client but, still must be incorporated in a solid, workable plan. The cornerstone of the Estate Recovery Method that my company promotes is flexibility and liquidity to allow for changing circumstances. All financial planners, advisors, reverse mortgage brokers, etc. would be well advised to incorporate these two tenets into every conversation they have when planning with seniors.
    Third, the writer makes a very good point to question whether it should be the responsibility of a reverse mortgage broker to advise and protect their clients from predatory financial products. I think this opens up a Pandora’s box of legal liability issues that would be best left to those licensed and trained to handle such discussions. A reverse mortgage broker must absolutely be aware of the warning signs, but avoid interjecting themselves into the actual terms and conditions of products. Perhaps the best course of action a reverse mortgage broker could take would be to request their clients always get a second opinion before purchasing any financial products.

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