Critical Stage for Reverse Mortgage Industry says MetLife Executive

Asserting that the reverse mortgage business is in “dire straits” – at a “critical stage” and “at a crossroads,” Craig Corn, vice-president reverse mortgages operations for MetLife Bank, is calling for “a new HECM product…one that offers significantly reduced proceeds.” (For the first five months of this year, MetLife Bank ranked fourth in overall originations with a 2.9 percent market share, according to Reverse Mortgage Insight, which tracks HECM origination volume.)

In a feature story under his byline appearing in the September issue of the “Mortgage Banking Magazine,” Corn states that it is “important to once-and-for-all address the perception that reverse mortgages are too expensive,” a view that he says stems from “relatively high upfront fees…and other typical third-party closing costs.” He advocates for two reverse mortgage categories – “one riskier, one far less risky,” that would provide a “greater level of product variety,” erasing what he calls “the stigma that has dogged [reverse mortgages] for years.”

A different view comes from Jeff Lewis, senior managing director, Guggenheim Partners, who says “there is nothing wrong with the [reverse mortgage] product. [Rather] we have a sales problem.” The industry, he insists, is “handling a variety of difficult circumstances well and the business will continue to thrive.” It is unfortunate, Lewis says, that federal law now prohibits cross-selling, or “bundling,” similar to what is done in the United Kingdom. “With bundling, you could sell [the reverse mortgage] as part of a senior’s financial independence plan.”

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In Corn’s contributed magazine piece, he recommends an “insurance fund”-like structure that would reinvent the mortgage insurance requirement, allowing the industry to expand the product segment and “move beyond the ‘one size fits all’ mentality that has dominated its approach for so long.”

In a speech earlier this year, the FHA’s Colin Cushman described a similar proposal for variations in reverse mortgage products, called the HECM Saver, in which the government would do away with the upfront mortgage insurance premium while lowering principal loan factors (the amount of home equity that can be tapped).

Written by Neil Morse

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  • Name,rnrnYou are absolutely correct unless it involves a HECM but then only if the originator or the originating entity is somehow providing a prohibited product besides a HECM.rnrnThe only reason why it seems there is this underlying resentment against anti cross-selling rules in the industry is because the HECM rule stops originators and originating entities from participating in what can only be described as transactions which have apparent and real conflicts of interest.rnrnEven if the federal rule is gone, such activities cannot be conducted in a few states unless the nationally chartered lenders are going to make their ridiculous arguments about preemption. I am afraid that would be exactly what would happen since the biggest prize is California. This actually happened in California with annuities when it came to a high ranking Arizona bank employee and her independent annuity selling husband. rnrnThe couple double teamed annuity/reverse mortgage seminars throughout 2007 in California after California specifically prohibited annuity sales by originators AND also prohibited an originator referring others for the purchase of annuities. It was obvious by the joint seminar arrangement that by implication alone, the reverse mortgage originator was referring the attendees to her husband. It was said that when challenged in 2007 about the joint seminars, the bank employee simply stated that employees of FDIC regulated banks are exempt by preemption from California law. Wink, wink u2013 sure that makes a lot of sense. rn

  • Mr. Morse quotes Mr. Lewis as saying: u201cu2018It is unfortunateu2019, Lewis says, u2018that federal law now prohibits cross-selling, or ‘bundling,’ similar to what is done in the United Kingdom. With bundling, you could sell [the reverse mortgage] as part of a senioru2019s financial independence plan.u2019u201d Besides being blatantly wrong, this statement with no qualifiers endorses apparent if not actual conflicts of interest. What occurs in the UK is hardly a strong justification for which should go on in the US. rnrnWhere does u201cfederal lawu201d prohibit an originator from cross selling the proprietary reverse mortgages sold by Generation Mortgage along with any other product? Bundling is not prohibited under federal law. Cross-selling by an originator or the originating entity simply prohibits FHA from insuring otherwise eligible reverse mortgages.rnrnThe laws of a few states prohibit cross-selling on any reverse mortgages. California goes even further to prohibit reverse mortgage originators from referring u201cu2026 the borrower to anyone for the purchase of an annuity or other financial or insurance product prior to the closing of the reverse mortgage or before the expiration of the right of the borrower to rescind the reverse mortgage agreement.u201d [California Civil Code 1923.2(i)(1)(B)]. But that is California law not federal.rnrnThere are few statements regarding reverse mortgages which Senator Claire McCaskill has publicly made which I fundamentally agree with. However, in principle I agree with her position on cross-selling as reflected in Section 2122(a)(9) of HERA of 2008 (Public Law 110-289). Cross-selling resulted in the most negative, yet justified, criticism. rnrnGordon Gecko is wrong; when it comes to HECMs in this ONE area (i.e., cross-selling), greed is not tolerated under the law. Is that really so bad??? rn

  • oldguy49,rnrnIf you are the consumer/borrower, there are no federal laws prohibiting you at all. The laws we are discussing impact the providers of reverse mortgages and their employees, not the borrower.

  • There’s no law prohibiting me from closing a on reverse tomorrow to fund life insurance two weeks from now with my grand kids as beneficiaries, is there? Or even an annuity, right? If I can do these two things bundling is not a consumer issue.

  • Wise1s,rnrnRarely is any compromise a “happy” one. As a wise financial maven once told me during mediation, u201cthe only good compromise is one where all parties walk away equally unhappy with the result.u201d At the time those words seemed ill advised; however, over the years, those words have rung far more true than not.rnrnThe only problem then becomes, is either party willing to walk away unhappy. So far only NRMLA has offered a middle ground; you can read it in the present federal law on HECMs. Senator McCaskill actually proposed something much worse.rnrnThe trouble is not every reverse mortgage originator agrees with the result. I doubt if very many of those who object know how bad it could have been. Not everyone wants compromise. Some will not be happy until either they win or the situation becomes much worse.rn

  • Raymond,rnrnBy agreeing with Jeff you are stating that federal law prohibits all cross-selling on all reverse mortgages. Like usual you do not seem to understand federal law.rnrnI have absolutely no problem with the federal law on cross-selling. It only applies to HECMs as well it should. rnrnCalifornia law applies to all reverse mortgages as well it should. Jeff’s comment is restricted to federal law.rnrnPlease make it clear how Jeff is right as to reverse mortgages which are not HECMs. As usual emotion rather than law or reason seems to apply to comments and statements made by many in our industry when it comes to cross-selling including those of Jeff.rnrnEven if the federal law is repealed, California law will prohibit cross-selling and REFERALS. Maybe your problem is not so much with federal law as Jeff declares but perhaps with California law?rnrnI have no problem with either one.rn

  • I don’t think TC was making that point. I think he was pointing out what the law prohibits the reverse loan originator from doing. The law does not prohibit a financial advisor from referring a client to a reverse mortgage originator although it does prevent financial compensation for so doing. What the law does do (at least in California) is prohibit a reverse mortgage loan originator from referring a borrower to a seller of any life insurance and in particular annuity salesmen prior to the closing of the reverse mortgage loan after the 3 day right of rescission. The problem is, who keeps the records of when, exactly, the referral is made? Three or four years down the line the only record may be of the reverse mortgage and the insurance product and attorneys and lawmakers alike are known to make legal hash of ambiguities in timelines. nnI agree that financial advisors should use the reverse mortgage as a financial tool for their clients even if I am not sure if the term “financial tool” is the correct one, but, given the climate we work in, I think it would be better to keep a separating wall between the banker/broker and the financial advisors. While the financial advisors may not have much to lose by taking a referral from a RM loan originator, the NMLS registration number of the loan originator follows the RM and, along with the laws at least of California, makes the loan originator an inviting target if inappropriate products or poor investment strategies result from the referral. What happens to the financial advisor or the annuity salesman? According to CA law, the onus is on the loan originator as are the legal penalties, not on the seller of insurance products.

  • >>I disagree with the “The Critic”…I believe that a financial advisor to a client should be able to recommend SUITABLE financial products for them( and get compensated if they are properly licensed). rnrnrnDitto. I agree with Jeff Lewis.

  • I think there is a “happy” medium that needs to be reached. This program is not for everyone, but should be looked at as another retirement “tool” in a senior’s arsenal. Especially in today’s depreciating market, it may make since to liquidate the house before other assests as it may take it longer to bounce back. RM loan officers have always struggled when working with CFPs, CFAs, etc…as there is no quid pro quo…we need to figure out a way to work better for our clients. I am not sure if a lower loan amount is the solution. We need to make this work for our clients better

  • Greg K.,rnrnIt is odd you believe that I am saying financial advisors should not be looking at reverse mortgages as part of an overall plan. If they are worth their compensation they will. But it seems you are saying that financial advisors WILL only recommend what it is they sell. If they are representing themselves as salespeople what is the matter with that? However, if they are representing themselves as advisors, there is much wrong with that.rn

  • I disagree with the “The Critic”…I believe that a financial advisor to a client should be able to recommend SUITABLE financial products for them( and get compensated if they are properly licensed). nHaving a person look at just one slice of a persons life instead of the whole financial picture can do much more harm than good….it doesn’t put the prospects best interest first. If all a person can sell is a mortgage then they are going to build a case to try to make it work so that they can make a sale; if they have multiple financial tools available they are much more likely to use the ones best suited for the clients needs (versus trying to make the reverse mortgage fit the need).nnIn the long run I see the financial advisors of the world using the reverse mortgage as just one of the financial tools at their disposal in dealing with their clients needs.

  • Name,rnrnYou are absolutely correct unless it involves a HECM but then only if the originator or the originating entity is somehow providing a prohibited product besides a HECM.rnrnThe only reason why it seems there is this underlying resentment against anti cross-selling rules in the industry is because the HECM rule stops originators and originating entities from participating in what can only be described as transactions which have apparent and real conflicts of interest.rnrnEven if the federal rule is gone, such activities cannot be conducted in a few states unless the nationally chartered lenders are going to make their ridiculous arguments about preemption. I am afraid that would be exactly what would happen since the biggest prize is California. This actually happened in California with annuities when it came to a high ranking Arizona bank employee and her independent annuity selling husband. rnrnThe couple double teamed annuity/reverse mortgage seminars throughout 2007 in California after California specifically prohibited annuity sales by originators AND also prohibited an originator referring others for the purchase of annuities. It was obvious by the joint seminar arrangement that by implication alone, the reverse mortgage originator was referring the attendees to her husband. It was said that when challenged in 2007 about the joint seminars, the bank employee simply stated that employees of FDIC regulated banks are exempt by preemption from California law. Wink, wink u2013 sure that makes a lot of sense. rn

  • Mr. Morse quotes Mr. Lewis as saying: u201cu2018It is unfortunateu2019, Lewis says, u2018that federal law now prohibits cross-selling, or ‘bundling,’ similar to what is done in the United Kingdom. With bundling, you could sell [the reverse mortgage] as part of a senioru2019s financial independence plan.u2019u201d Besides being blatantly wrong, this statement with no qualifiers endorses apparent if not actual conflicts of interest. What occurs in the UK is hardly a strong justification for which should go on in the US. rnrnWhere does u201cfederal lawu201d prohibit an originator from cross selling the proprietary reverse mortgages sold by Generation Mortgage along with any other product? Bundling is not prohibited under federal law. Cross-selling by an originator or the originating entity simply prohibits FHA from insuring otherwise eligible reverse mortgages.rnrnThe laws of a few states prohibit cross-selling on any reverse mortgages. California goes even further to prohibit reverse mortgage originators from referring u201cu2026 the borrower to anyone for the purchase of an annuity or other financial or insurance product prior to the closing of the reverse mortgage or before the expiration of the right of the borrower to rescind the reverse mortgage agreement.u201d [California Civil Code 1923.2(i)(1)(B)]. But that is California law not federal.rnrnThere are few statements regarding reverse mortgages which Senator Claire McCaskill has publicly made which I fundamentally agree with. However, in principle I agree with her position on cross-selling as reflected in Section 2122(a)(9) of HERA of 2008 (Public Law 110-289). Cross-selling resulted in the most negative, yet justified, criticism. rnrnGordon Gecko is wrong; when it comes to HECMs in this ONE area (i.e., cross-selling), greed is not tolerated under the law. Is that really so bad??? rn

  • Mr. Morse quotes Mr. Lewis as saying: u201cu2018It is unfortunateu2019, Lewis says, u2018that federal law now prohibits cross-selling, or ‘bundling,’ similar to what is done in the United Kingdom. With bundling, you could sell [the reverse mortgage] as part of a senioru2019s financial independence plan.u2019u201d Besides being blatantly wrong, this statement with no qualifiers endorses apparent if not actual conflicts of interest. What occurs in the UK is hardly a strong justification for which should go on in the US. rnrnWhere does u201cfederal lawu201d prohibit an originator from cross selling the proprietary reverse mortgages sold by Generation Mortgage along with any other product? Bundling is not prohibited under federal law. Cross-selling by an originator or the originating entity simply prohibits FHA from insuring otherwise eligible reverse mortgages.rnrnThe laws of a few states prohibit cross-selling on any reverse mortgages. California goes even further to prohibit reverse mortgage originators from referring u201cu2026 the borrower to anyone for the purchase of an annuity or other financial or insurance product prior to the closing of the reverse mortgage or before the expiration of the right of the borrower to rescind the reverse mortgage agreement.u201d [California Civil Code 1923.2(i)(1)(B)]. But that is California law not federal.rnrnThere are few statements regarding reverse mortgages which Senator Claire McCaskill has publicly made which I fundamentally agree with. However, in principle I agree with her position on cross-selling as reflected in Section 2122(a)(9) of HERA of 2008 (Public Law 110-289). Cross-selling resulted in the most negative, yet justified, criticism. rnrnGordon Gecko is wrong; when it comes to HECMs in this ONE area (i.e., cross-selling), greed is not tolerated under the law. Is that really so bad??? rn

    • Name,rnrnYou are absolutely correct unless it involves a HECM but then only if the originator or the originating entity is somehow providing a prohibited product besides a HECM.rnrnThe only reason why it seems there is this underlying resentment against anti cross-selling rules in the industry is because the HECM rule stops originators and originating entities from participating in what can only be described as transactions which have apparent and real conflicts of interest.rnrnEven if the federal rule is gone, such activities cannot be conducted in a few states unless the nationally chartered lenders are going to make their ridiculous arguments about preemption. I am afraid that would be exactly what would happen since the biggest prize is California. This actually happened in California with annuities when it came to a high ranking Arizona bank employee and her independent annuity selling husband. rnrnThe couple double teamed annuity/reverse mortgage seminars throughout 2007 in California after California specifically prohibited annuity sales by originators AND also prohibited an originator referring others for the purchase of annuities. It was obvious by the joint seminar arrangement that by implication alone, the reverse mortgage originator was referring the attendees to her husband. It was said that when challenged in 2007 about the joint seminars, the bank employee simply stated that employees of FDIC regulated banks are exempt by preemption from California law. Wink, wink u2013 sure that makes a lot of sense. rn

  • I disagree with the “The Critic”…I believe that a financial advisor to a client should be able to recommend SUITABLE financial products for them( and get compensated if they are properly licensed). nHaving a person look at just one slice of a persons life instead of the whole financial picture can do much more harm than good….it doesn’t put the prospects best interest first. If all a person can sell is a mortgage then they are going to build a case to try to make it work so that they can make a sale; if they have multiple financial tools available they are much more likely to use the ones best suited for the clients needs (versus trying to make the reverse mortgage fit the need).nnIn the long run I see the financial advisors of the world using the reverse mortgage as just one of the financial tools at their disposal in dealing with their clients needs.

    • Greg K.,rnrnIt is odd you believe that I am saying financial advisors should not be looking at reverse mortgages as part of an overall plan. If they are worth their compensation they will. But it seems you are saying that financial advisors WILL only recommend what it is they sell. If they are representing themselves as salespeople what is the matter with that? However, if they are representing themselves as advisors, there is much wrong with that.rn

  • I think there is a “happy” medium that needs to be reached. This program is not for everyone, but should be looked at as another retirement “tool” in a senior’s arsenal. Especially in today’s depreciating market, it may make since to liquidate the house before other assests as it may take it longer to bounce back. RM loan officers have always struggled when working with CFPs, CFAs, etc…as there is no quid pro quo…we need to figure out a way to work better for our clients. I am not sure if a lower loan amount is the solution. We need to make this work for our clients better

    • Wise1s,rnrnRarely is any compromise a “happy” one. As a wise financial maven once told me during mediation, u201cthe only good compromise is one where all parties walk away equally unhappy with the result.u201d At the time those words seemed ill advised; however, over the years, those words have rung far more true than not.rnrnThe only problem then becomes, is either party willing to walk away unhappy. So far only NRMLA has offered a middle ground; you can read it in the present federal law on HECMs. Senator McCaskill actually proposed something much worse.rnrnThe trouble is not every reverse mortgage originator agrees with the result. I doubt if very many of those who object know how bad it could have been. Not everyone wants compromise. Some will not be happy until either they win or the situation becomes much worse.rn

  • >>I disagree with the “The Critic”…I believe that a financial advisor to a client should be able to recommend SUITABLE financial products for them( and get compensated if they are properly licensed). rnrnrnDitto. I agree with Jeff Lewis.

    • Raymond,rnrnBy agreeing with Jeff you are stating that federal law prohibits all cross-selling on all reverse mortgages. Like usual you do not seem to understand federal law.rnrnI have absolutely no problem with the federal law on cross-selling. It only applies to HECMs as well it should. rnrnCalifornia law applies to all reverse mortgages as well it should. Jeff’s comment is restricted to federal law.rnrnPlease make it clear how Jeff is right as to reverse mortgages which are not HECMs. As usual emotion rather than law or reason seems to apply to comments and statements made by many in our industry when it comes to cross-selling including those of Jeff.rnrnEven if the federal law is repealed, California law will prohibit cross-selling and REFERALS. Maybe your problem is not so much with federal law as Jeff declares but perhaps with California law?rnrnI have no problem with either one.rn

  • I don’t think TC was making that point. I think he was pointing out what the law prohibits the reverse loan originator from doing. The law does not prohibit a financial advisor from referring a client to a reverse mortgage originator although it does prevent financial compensation for so doing. What the law does do (at least in California) is prohibit a reverse mortgage loan originator from referring a borrower to a seller of any life insurance and in particular annuity salesmen prior to the closing of the reverse mortgage loan after the 3 day right of rescission. The problem is, who keeps the records of when, exactly, the referral is made? Three or four years down the line the only record may be of the reverse mortgage and the insurance product and attorneys and lawmakers alike are known to make legal hash of ambiguities in timelines. nnI agree that financial advisors should use the reverse mortgage as a financial tool for their clients even if I am not sure if the term “financial tool” is the correct one, but, given the climate we work in, I think it would be better to keep a separating wall between the banker/broker and the financial advisors. While the financial advisors may not have much to lose by taking a referral from a RM loan originator, the NMLS registration number of the loan originator follows the RM and, along with the laws at least of California, makes the loan originator an inviting target if inappropriate products or poor investment strategies result from the referral. What happens to the financial advisor or the annuity salesman? According to CA law, the onus is on the loan originator as are the legal penalties, not on the seller of insurance products.

  • There’s no law prohibiting me from closing a on reverse tomorrow to fund life insurance two weeks from now with my grand kids as beneficiaries, is there? Or even an annuity, right? If I can do these two things bundling is not a consumer issue.

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