Reverse mortgage demographics do not equal destiny

Pulling no punches, Dennis Haber suggests there is not enough ethical behavior in the mortgage business and he questions why. As executive vice-president, Consumer Equity, Garden City, N.Y., Haber says “part of the answer is that a lot of people in the mortgage business don’t know if they’re selling a product or providing a service. If you’re selling a product,” he explains, “all you care about is making a sale and you’re going to say and do whatever it takes to get [that] done.”

But, if you believe you are providing a service, according to Haber, “then you are going to make certain that what occurs is absolutely, positively in the best interest of the client and you are comfortable with the fact that sometimes you just have to walk away.” In his view, says Haber, “I believe [mortgage providers] are providing a service.”

Sharing the speakers’ dais with Haber at a recent industry conference, Neil Garfinkel, partner, Abrams Garfinkel Margolies, underscored the importance of ethical behavior, particularly in serving seniors. “There’s no room for any black eyes in the reverse mortgage community,” he declares, blaming unethical behavior as a prime reason for that undesirable result. Failure to maintain high standards, warns Garfinkel, “could really be the end of this [reverse] product.” He adds for emphasis that “there has to be an element that goes beyond [asking], ‘is this legal?’ It has to reflect that it’s also an ethical piece.”

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Ethics and resulting reputation risk also drives media coverage, points out Jim Milano, an attorney with the Washington, D.C. firm, Weiner Brodsky Sidman Kider, who puts “negative press“ among the challenges for reverse mortgages today. “The demographics and the fundamentals of the business proposition are not only sound, but are compelling,” Milano notes. “But, demographics do not equal destiny.” Legal and regulatory burdens threaten the industry, Milano warned and mentions insufficient government appropriations; tax and insurance defaults; and over-regulation as other problems.

Written by Neil Morse

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  • The quoted information is helpful but hardly controversial. What always turns out to be controversial is agreement on specific ethical rules.

    In its CRMP program, NRMLA does cover its ethical standards. Such presentations need to be expanded to the general sessions of NRMLA conventions and Road Shows. A good first step was the presentations by Neil Garfinkel and Dennis Haber.

    We all need to be reminded about the ethical standards we may have agreed to follow and those which are expected of us all.

  • I think most brokers would say that they're doing both. In IL, we enacted a broker-as-fiduciary piece of legislation, thus requiring brokers to act in the best interests of our clients, just as Mr. Haber describes. At the end of the day, though, it turns out brokers, when forced to choose, are simply arms-length product salesman: no industry fought the IL legislation more than the brokers' lobbying group. Sad.

  • Ethanol74, Question, when you say “brokers” fought the legislation do you mean “originators”? Does your definition of broker include lenders and banks?

  • My Doctor, CPA and Attorney provide a service. As such they're paid whether I take there advise or not. When our industry establishes a standard hourly billing rate for advising our clients and we receive payment whether or not the loans is consummated then we’ll be providing a service. As long as our compensation is based outcome we’re selling a product.

    • Ken,

      In some ways I agree with you. However, the legal framework many of us, except nationally chartered lenders, work under here in California is a fiducary standard. This puts us both in the position of providing a service at no fee plus compensation if we successfully sell. That has the real feel of a conflict of interest. Even a suitability standard would be difficult but a fiduciary standard reeks of conflict.

  • Ethanol74 – I run a brokerage and got rid of a productive loan officer because I found he was “selling” rather than “providing a service”. He now works for a very large bank (you know their name). My point is that it comes down to the individual and his or her managers, not the legal structure of the employing company (broker versus bank).

    • Lance,

      I find your argument somewhat “clouded.”

      You, like me, are in California and as brokers by law we have a fiduciary standard we both must abide by. If your employees fail that standard, you and they are both responsible for their conduct.

      By law both you and I must be service oriented whether we believe it appropriate or not. So while the notion you provide is lofty, besides being anecdotal it is also irrelevant to the discussion at hand.

      Today there are three major categories of legal standards in play. The first is that of a mortgage salesperson. The second brings suitability into play. The third is the fiduciary standard which several states now mandate.

      Here the issue is not legal but rather ethical. Some in the industry may claim that the fiduciary standard is the correct ethical standard but most of those individuals are not originators who earn their compensation through individual sales. Some may clamor for a suitability ethical standard but just try and define that standard; I wish them the best of luck in bringing about a well defined and WORKABLE framework by which originators can PRACTICALLY measure their deliberations.

      It seems whether we believe a conflict of interest exists or not, two attorneys are telling salespeople to put customer interests above their own, a fiduciary standard. Sounds good on the surface but what do they mean? If my company does not offer adjustable rate HECMs but it is clear that the customer would be better off, what should one do especially when the senior only wants a fixed rate HECM? What if the interest rate you must charge to keep your doors open (your own standards) is 0.07% higher than that of your competitor? What if during rescission your firm drops its interest rate by 0.07% should your policy be to provide that lower rate to the senior? What if that rate will result in more proceeds or force re-disclosure under RESPA? Where does one “draw the line?”

      When it comes to ethical standards, let’s not exchange reasonable expectations for “ivory palace” and “window dressing” standards.

  • Lance,rnrnI find your argument somewhat u201cclouded.u201d rnrnYou, like me, are in California and as brokers by law we have a fiduciary standard we both must abide by. If your employees fail that standard, you and they are both responsible for their conduct.rnrnBy law both you and I must be service oriented whether we believe it appropriate or not. So while the notion you provide is lofty, besides being anecdotal it is also irrelevant to the discussion at hand.rnrnToday there are three major categories of legal standards in play. The first is that of a mortgage salesperson. The second brings suitability into play. The third is the fiduciary standard which several states now mandate.rnrnHere the issue is not legal but rather ethical. Some in the industry may claim that the fiduciary standard is the correct ethical standard but most of those individuals are not originators who earn their compensation through individual sales. Some may clamor for a suitability ethical standard but just try and define that standard; I wish them the best of luck in bringing about a well defined and WORKABLE framework by which originators can PRACTICALLY measure their deliberations.rnrnIt seems whether we believe a conflict of interest exists or not, two attorneys are telling salespeople to put customer interests above their own, a fiduciary standard. Sounds good on the surface but what do they mean? If my company does not offer adjustable rate HECMs but it is clear that the customer would be better off, what should one do especially when the senior only wants a fixed rate HECM? What if the interest rate you must charge to keep your doors open (your own standards) is 0.07% higher than that of your competitor? What if during rescission your firm drops its interest rate by 0.07% should your policy be to provide that lower rate to the senior? What if that rate will result in more proceeds or force re-disclosure under RESPA? Where does one u201cdraw the line?u201drnrnWhen it comes to ethical standards, letu2019s not exchange reasonable expectations for u201civory palaceu201d and u201cwindow dressingu201d standards.rnrn

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