Reverse Mortgage Industry Putting Out Legislation Fires says Lewis

With more state reverse mortgage legislation being proposed, Jeff Lewis, Chairman of Generation Mortgage told Broker Universe that there is a high level of concern about these bills and how the industry is going around state to state “putting out fires,” as these bills legislate “to the lowest common denominator”. He adds, “Something happens one time to one person, so somebody decides they need to change all the rules to protect someone from something that really isn’t common or isn’t really a big issue.”

However, Lewis admits that the industry isn’t perfect and there are some who have done things not quite right, such as some loan officers allegedly marking up reverse mortgage loans to get paid more. It is not a common practice, he said.

But what really gets him incensed is the cross-selling language inserted in the McCaskill amendment. Lewis told Broker Universe the law asks the Department of Housing and Urban Development to regulate something it normally doesn’t, the sale of investment products.

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There is a concern about what people do with the loan proceeds, and advisors work with consumers to do “things that are intelligent” with the money. He suggested encouraging people to invest in income products that hedge longevity and mitigate their risk, not the wealth accumulation products with high fees that are not appropriate for seniors.

“If people are sold things that are unsuitable, it is the responsibility of those industries that those products to prevent that from happening,” Mr. Lewis declared, adding if an 83-year-old is sold a product with 12 points of sales charges, that sales person should get in trouble, no matter where the senior got the funds to purchase the product from. “It is going in the wrong direction” to blame the reverse mortgage lender for how the proceeds are used, he continued.

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  • The so called McCaskill restriction on cross selling is hardly the irrational or unreasonable provision that Mr. Lewis and others portray it to be. Forcing the originator to choose to be either the provider of a financial or insurance product or be the HECM originator during the period of origination and funding is hardly an unreasonable or irrational demand. Sometimes the underlying arguments seem more about loss of revenues than providing the best care to seniors.

    After all we all agree that seniors are and should be a protected class. So to restrict originators as HERA does seems the correct position.

    Where the HERA provision goes wrong is in respect to enforcement as to security licensees. Here joint enforcement between HUD and the SEC would have been better.

    As of yet no one has pinpointed what regulator in the federal government is better suited to oversee insurance licensees. Also it is perfectly legal in many states for non-licensees to sell certain securities. So in the federal government what regulator would oversee these particular transactions?

    The basic ideas Senator McCaskill promotes are well founded. I find more problems with her depiction of the potential problems in light of the factual situations than anything else. It is also difficult to work with an individual whose bias does not permit discussion and exploration of why some of her concerns related to risk are far less warranted than she might otherwise promote or believe.

  • The problem with state legislation is that what seemed in place one day could change the next. For example, while the California law was recently amended, California Senate and Assembly staff members are looking at how to correct some of the “problems” with that legislation.

    I strongly believe in model legislation but only if it results from hammering it out through a convention between state lawmakers and regulators and industry representatives. Unfortunately for the time being, that approach seems unlikely.

    The MBA approach of creating a bill by industry representatives alone has been ignored by the states. Some have called this approach arrogant. It certainly did not address the concerns of state lawmakers.

  • He can point his finger at the legislature all he wants, but the bottom line is that when left to police themselves, the banking industry from top to bottom is more corrupt than the Congress. How can they police themselves?

    • rainmand,

      Generic advice of this nature shows the true danger of allowing reverse mortgage originators to advise on the use of proceeds. Doesn't it seem odd that those who would benefit financially by the investment of excess proceeds could also benefit financially by a higher initial balance due? Such potential conflicts of interest substantiate the need for qualified and state licensed fee based only investment advisors where substantial proceeds will be distributed to a borrower at funding — or eliminating the HECM originator as one who can sell insurance or financial products until after the HECM is funded.

  • Can I get an “Amen”?

    I came to reverse mortgages from the retirement planning side because they were an advantageous and flexible funding tool. Sometimes the reverse mortgage could resolve the client's financial issues by itself, sometimes the client's goals required an additional and complementary financial instrument or plan.

    Since then, I have watched reverse mortgage flexibility and utility decrease as they were increasingly “discovered” by mass marketers, the mortgage industry, and regulatory & legislative entities.

    I'd like to thank Mr. Lewis for GMC's efforts to preserve a foundational principle of the reverse mortgage idea of freedom of choice with regard to funds. Compensation questions aside, the HERA's excessively broad cross-selling restrictions and penalties have made it much more difficult to implement a sound and beneficial suitable multi-instrument plan. This is especially so since he seems to be forced to do so on his own while NRMLA tries to get everybody to sing “Kum Bah Ya”.

    • Mr. Peters,

      I am surprised by the tone of your response. As a fee based only advisor, I worked in coordination with a variety of salespeople in implementing retirement plans and planning ranging from individuals to huge ERISA retirement plans. Peers rarely ruined or made it more difficult to implement a plan. At times it was challenging but generally such challenges either caused me to change the plan or substantiated why it was the most appropriate course of action.

      You seem to promote the idea that “sound and beneficial suitable multi-instrument plans” becomes worse if subjected to challenge by your peers. I fundamentally disagree. It is because of the exchange of ideas among peers that plans gain strength and credibility, in many cases removing even the hint of potential conflicts of interest.

      I was personally the tax advisor for many multiemployer employee benefit plans. Not only were we engaged by such plans but so were legal counsel, actuaries, auditors, independent investment advisors as well as executive sales representatives of investment houses providing products. I rarely found the presence of peers to be anything other than advantageous.

      I also worked with attorneys, other CPAs, trust officers, and securities licensees on significant estates and trusts and rarely found them to be a nuisance or a huge problem. These situations made me a better advisor in smaller situations where fewer advisors were involved. Yes, I was challenged and worked harder but what is wrong with that?

      I am sure you have a well reasoned explanation for your position but your experience is apparently much different than mine. Having someone else review one's work product is not necessarily as negative as some make it out to be.

  • Jeff Lewis with Genworth is doing a good job defending HECMS. Senator McCaskill is not objective about the HECM. She was against a reverse for her mother fine but don't take it out on the industry.This new age feeling is not logical or reasonable. Thanks Jeff for standing for best practices.

  • Jeff Lewis is absolutely right,inappropriate selling of investment products should be the governed by the insurance and securities industry.When regulators use a broad brush they can do more harm then good.

    • Mr. Frankel,

      As to the securities industry, they did well when they elected Bernie Madoff to oversee their voluntary oversight and enforcement arm, NASDAQ. The current head of the SEC had all of the info NASDAQ needed to expose Mr. Madoff (along with Stanford and others) when she headed up NASDAQ. The insurance industry did almost as well with AIG.

      Since HECMs are a federal program who would you suggest to monitor insurance licensees at the federal level? Since investment advisors do not necessarily have to be licensed by FINRA who would you suggest oversee them when it comes to HECMs? Some of us question the ability of NASDAQ or its successor, FINRA to do any meaningful oversight of the securities industry let alone the use of proceeds in acquiring securities, a much more difficult enforcement issue if they do not have access or oversight of mortgage lenders or brokers.

      Are you saying these regulators are prohibited from overseeing this portion of HERA? They are not. If these regulators were suited to regulating HECM transactions, then they should have discovered some of the problems that occurred in the past. I know of no such discovery.

  • So True! The elitist attitude of all these senators and congressmen that they think they can know every industry and legislate intelligently toward that industry is sickening.

  • I have said this before and I will say it again. The states are going to be the icing on the cake for the ruination of the reverse mortgage industry. To many regulations, to many variations of them and the legislators have very little knowledge of what they are doing.

    The McCaskill amendment is as ridicules as she is on reverse mortgage issue's. I don't disagree that we must have protections and safety measures for our seniors. We need to protect them from predators. However, the actions of our legislative bodies and the agencies over the past couple of years have created the mess we have today. Five years ago, we did not have the amount of predatory lending going on as we have today. We had very little predatory lending going on, sure we had our share but nothing like what we have now.

    How is the industry going to keep up with all the state regulations, the federal regulations, the underwriting changes, the RESPA changes, I could go on and on. Enough is enough. How can we as an industry stop the clock for a while. We need to slow down and analyze all the changes that have and are going into affect. We need to ask ourselves, are we and our seniors really better off today than we were five years ago (I know, this is not a very original quote)?

    John A. Smaldone

  • So True! The elitist attitude of all these senators and congressmen that they think they can know every industry and legislate intelligently toward that industry is sickening.

  • I have said this before and I will say it again. The states are going to be the icing on the cake for the ruination of the reverse mortgage industry. To many regulations, to many variations of them and the legislators have very little knowledge of what they are doing.rnrnThe McCaskill amendment is as ridicules as she is on reverse mortgage issue’s. I don’t disagree that we must have protections and safety measures for our seniors. We need to protect them from predators. However, the actions of our legislative bodies and the agencies over the past couple of years have created the mess we have today. Five years ago, we did not have the amount of predatory lending going on as we have today. We had very little predatory lending going on, sure we had our share but nothing like what we have now.rnrnHow is the industry going to keep up with all the state regulations, the federal regulations, the underwriting changes, the RESPA changes, I could go on and on. Enough is enough. How can we as an industry stop the clock for a while. We need to slow down and analyze all the changes that have and are going into affect. We need to ask ourselves, are we and our seniors really better off today than we were five years ago (I know, this is not a very original quote)?rnrnJohn A. Smaldone

  • I am just a lowly reverse mortgage originator, but isn't the selling of annuities (and boy, did I just run across a doozy of a story about one being sold as a “necessary” purchase in order to get a reverse mortgage) regulated by state legislation? That of course would make the McCaskill amendment toothless as well as troublesome unless the federal government is ready to remove the oversite of those certain insurance products from the states as health care insurance issue has been removed making all state insurance commissioners redundant and eliminating an entire department payroll from state budgets. That should warm the hearts of Californians and add more people to our bulging unemployment rolls.

    If they are regulated by the states, and again, I am no expert and don't claim to be, doesn't that explain the blizzard of state legislation regarding cross-selling?

    The biggest problem is to avoid the tangle that state legislatures make in writing various laws that have to, as Mr. Veale pointed out, be “corrected.” So yeah, I agree, model legislation that is hammered out between the industry and the legislative groups would be ideal and just as unlikely to happen.

  • I am just a lowly reverse mortgage originator, but isn’t the selling of annuities (and boy, did I just run across a doozy of a story about one being sold as a “necessary” purchase in order to get a reverse mortgage) regulated by state legislation? That of course would make the McCaskill amendment toothless as well as troublesome unless the federal government is ready to remove the oversite of those certain insurance products from the states as health care insurance issue has been removed making all state insurance commissioners redundant and eliminating an entire department payroll from state budgets. That should warm the hearts of Californians and add more people to our bulging unemployment rolls.rnrnIf they are regulated by the states, and again, I am no expert and don’t claim to be, doesn’t that explain the blizzard of state legislation regarding cross-selling? rnrnThe biggest problem is to avoid the tangle that state legislatures make in writing various laws that have to, as Mr. Veale pointed out, be “corrected.” So yeah, I agree, model legislation that is hammered out between the industry and the legislative groups would be ideal and just as unlikely to happen.

  • rainmand,rnrnGeneric advice of this nature shows the true danger of allowing reverse mortgage originators to advise on the use of proceeds. Doesn’t it seem odd that those who would benefit financially by the investment of excess proceeds could also benefit financially by a higher initial balance due? Such potential conflicts of interest substantiate the need for qualified and state licensed fee based only investment advisors where substantial proceeds will be distributed to a borrower at funding — or eliminating the HECM originator as one who can sell insurance or financial products until after the HECM is funded.

  • Mr. Peters,rnrnI am surprised by the tone of your response. As a fee based only advisor, I worked in coordination with a variety of salespeople in implementing retirement plans and planning ranging from individuals to huge ERISA retirement plans. Peers rarely ruined or made it more difficult to implement a plan. At times it was challenging but generally such challenges either caused me to change the plan or substantiated why it was the most appropriate course of action.rnrnYou seem to promote the idea that “sound and beneficial suitable multi-instrument plans” become worse if subjected to challenge by your peers. I fundamentally disagree. It is because of the exchange of ideas among peers that plans gain strength and credibility, in many cases removing even the hint of potential conflicts of interest.rnrnI was personally the tax advisor for many multiemployer employee benefit plans. Not only were we engaged by such plans but so were legal counsel, actuaries, auditors, independent investment advisors as well as executive sales representatives of investment houses providing products. I rarely found the presence of peers to be anything other than advantageous.rnrnI also worked with attorneys, other CPAs, trust officers, and securities licensees on significant estates and trusts and rarely found them to be a nuisance or a huge problem. These situations made me a better advisor in smaller situations where fewer advisors were involved. Yes, I was challenged and worked harder but what is wrong with that?rnrnI am sure you have a well reasoned explanation for your position but your experience is apparently much different than mine. Having someone else review one’s work product is not necessarily as negative as some make it out to be. It can be a very positive experience.rnrnrn

  • Ed,rnrnAs to the securities industry, they did well when they elected Bernie Madoff to oversee their voluntary oversight and enforcement arm, NASDAQ. The current head of the SEC had all of the info NASDAQ needed to expose Mr. Madoff (along with Stanford and others) when she headed up NASDAQ (and FINRA). The insurance industry did almost as well with AIG.rnrnSince HECMs are a federal program who would you suggest to monitor insurance licensees at the federal level? Since exempt investment salespeople do not necessarily have to be licensed by FINRA who would you suggest oversee them when it comes to HECMs? Some of us question the ability of NASDAQ or its successor, FINRA to do any meaningful oversight of the securities industry let alone the use of proceeds in acquiring securities, a much more difficult enforcement issue — especially if they do not have access or oversight of mortgage lenders or brokers.rnrnAre you saying these regulators are prohibited from overseeing this portion of HERA? They are not. If these regulators were really suited to regulating HECM transactions, then they should have discovered some of the problems that occurred in the past. I know of no such discovery.rnrn

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