Industry Must Educate Consumers on All Reverse Mortgage Options says Lewis

Not one to mince words, Jeff Lewis put it bluntly to a ballroom-full of industry practitioners at the NRMLA Annual Meeting in November when he urged them to fairly offer the new HECM Saver to customers. The senior managing director, Guggenheim Partners and chairman of the board of Generation Mortgage Company, warned in staccato cadence:

“If we create Savers that are just springboards into future Standards that are excessively fast. If we put people into fixed who could have used the Saver. If we don’t tell people about the options that are available to them because of what suits us, we are going to damage the industry for a long time. If we don’t educate them, then we are doing them and us a disservice,” Lewis warned.

Some audience members clapped, others sat on their hands wondering whether they would be the new bad guys. Michael Gruley of 1st Financial Reverse Mortgages agreed with the recommendation, but with a qualification. “As an industry, it is our duty to promote the virtues of the HECM Saver equally with all other HECM options, because it is simply the right thing to do for our clients and our industry as a whole. Beyond that, it is up to consumers to decide what solution makes the most sense for them.”

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FHA designed HECM Saver as a second, initial mortgage insurance premium (MIP) option for the purpose of lowering upfront loan closing costs, for mortgagors who want to borrow a smaller amount than what would be available with a HECM Standard.

Angella Conrard, reverse mortgage advisor with the Orange County, Calif. National Aging in Place Council, was more doubtful of Lewis’ contention. “I do not think we will ruin the market [by not offering Savers], but I think that a regulation saying we need to offer all – or at least a certain variety of – options that are at our disposal, is fair, for the context that we are currently in.”

Self-described as “not one for many regulations that inhibit a market or free choice,” Conrard prefers regulations that “support education and freedom of choice and market. This supports the consumer and the industry,” she explains, adding that “it would be unfortunate to see our industry regulated to the point of impairment” and that some of her “more sophisticated clients become a little disgruntled” with having to go through the extensive, new counseling protocols. “But, I remind them,” Conrard reports, “that less than 25 percent of Americans have any kind of education in this area and that this is a good regulation for everybody.”

Written by Neil Morse

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  • All of the contributors express little understanding of the legal requirements set upon many of us. In California and Minnesota many mortgage originators now must meet the legal requirements of a fiduciary standard.

    Forget about what Mr. Lewis or anyone else says. If originators are not minimally meeting the mortgage origination standards under the laws in which they operate and are licensed, members of this industry are not only guilty of violating the standards of the speaker but also legal standards. There are no courts adjudicating on the standards of the contributors; however, if we as an industry do not meet minimum legal standards and are found out and convicted, we will know the righteously generated full force of the press which comes not just from bad but illegal behavior.

    The appeal should have been first to stress the need to meet all minimum legal standards when making any presentation to seniors. The quotations make it seem that Mr. Lewis made the issue little more than an ethical, good business practice, or potential PR problem when in fact it is first and foremost for many of us an actual legal issue. Some it seems believe that there is leeway which may be true for them. For others, especially those doing business in California, there is little if any leeway.

    It does not matter what industry leadership says, what NRMLA says, or even what standards FHA and HUD may make on us. We first and foremost must operate under the standards which govern our licenses, both state and federal (including NMLS). Then we must look to see if HUD and FHA require a higher standard. After which for NRMLA members we should look to see if we are operating at the level of its ethical standards and good business practices. Then we should heed the advice of industry leadership.

    Do not forget out of state originators are governed not just by the laws of the state in which the majority of their operations take place but also by the laws of the state in which they are acrually doing business. Things are indeed far more complicated than in the past.

    Industry leaders love to pontificate and much of that is necessary and good. Unfortunately here is a situation where law should always come first. Then we should be admonished to meet standards (if any) which exceed those requirements. Maybe that is the very reason why some sat on their hands. Who could blame them?

  • Cynic, Well written!
    Thank you for pointing out our legal responsibility. All must operate within the laws required by the state(s) where we do business. Codes of Ethics are not laws, only guidelines. The Laws and Codes of Ethics need more enforcement, mainly the Law.

  • Let’s not weigh so heavily on every word. Different ears interpret words differently. Basically we all need to disclose all available options in the PROPER fashion. Those that use unethical sales tactics to steer a client into any particular product need to understand the consequences of doing so. The Cynic hits the nail on the head with the last sentence of his second paragraph. The media can be our worst enemy only if we allow them to be. Let’s not give them any reason to.

    • Regguy1,

      I appreciate your comment but it is exactly because different ears interpret words differently that speeches need to conform to minimum standards especially when they intrude into legal areas. We and our leaders need to be constantly reminded that not all origination has equal requirements under the laws. That is done far too seldom.

      The danger in the speech is that Jeff is highly regarded by many members in our industry. His achievements are exemplary but that does not mean he should not be careful when advising a group of people who must follow one set of standards while others in that same room doing the very same things are governed by another and still others can be governed by either sets of rules solely dependent upon where they are doing business. If I stood to say the things Jeff did, few would heed my words and rightfully so. It is because of the level of respect that Jeff commands his words are more important and need to be guarded.

      In the past our industry was much simpler. It is far, far more complex today. Reverting back to former days is a dangerous position for those who would pontificate minimal standards or want to direct origination activities in a specific direction.

      The relaxed standards of the past must be discarded if we want to rise to the level of a respected profession. The bar for maintaining our current level of credibility has risen and seems to be on the rise. This requires higher and upgraded standards particularly when it comes to speaking about going in a different direction. Some, who should not, will view the other direction as an option because the respected speaker forgot he was speaking to people with different levels of legal responsibility.

      I do not condemn the quotations. I simply state they are overly simplistic based on the legal environment we face. If the legal standards you must adhere to are not fiduciary, I envy you because you have a better safety net.

  • Cynic,

    Your comments were very well stated. If everyone reading your comments take one main point out of it you gave a great 101 + course. The main point I see is: “We are not all bound to the same laws, rules and regulations, we have no choice but to accept this. However, we as originators should rise above the most rigid standards and give to our seniors the best the industry can offer”. Education is becoming more critical than ever, more important today than in the past.

    Jeff made a statement, which is:

    “If we create Savers that are just springboards into future Standards that are excessively fast. If we put people into fixed who could have used the Saver. If we don’t tell people about the options that are available to them because of what suits us, we are going to damage the industry for a long time. If we don’t educate them, then we are doing them and us a disservice,” Lewis warned”

    Jeff is right to a degree. However, the industry is different today. We tempt the originator with high dollars that can be made on one product over another, this is what our industry has evolved into. Many originators should do what is right but when they see how much they can make on a loan, they become greedy. If a loan originator can make, lets say, $7,000.00 on one product and only $3,000.00 on another, what happens? The product that the originator would make $3,000.00 on may have been the best product for our senior but they get slammed into the loan where $7,000.00 can be made.

    Because of the pricing structure of products today, verses the pricing grids and pay outs to originators in the past, we have different mind sets. In the past, it was easier to implement our fiduciary responsibility to our seniors. The environment we have created does not make Jeff’s statement feasible to achieve in a great number of cases.

    I am not saying that all loan originators are out for the max amount of money they can make and heck with the senior. Although, we have to be realistic, the income temptations of today for loan originators were not their 3 and 4 years ago. The Cynic could not have presented his or her case any better than the way it was, I applaud you.

    John A. Smaldone

    • John,

      Our concerns are very similar. This is not a reply of disagreement but rather clarification. I do not believe that there is anything in either your comment or any of the comments in the article which have anything to do with education per se. All are legal, ethical, or good business practice issues.

      Jeff talks about at least two different standards while you emphasize one. When you say: “Many originators should do what is right but when they see how much they can make on a loan, they become greedy. … [borrowers] get slammed into the loan…” where the originator makes the most money, you are presenting clearly a fiduciary standard. Even though Jeff addresses the same issue, he also states: “If we don’t tell people about the options that are available to them…,” which is a matter of full, complete, and adequate disclosure. Appeals to originators to provide better education simply muddies the waters.

      Those who are licensed under a fiduciary standard must not only provide full, complete, and adequate disclosure but must also put the interests of the customer above their own. Those who are licensed under other standards are generally required to give full, complete, and adequate disclosure but are not necessarily held to a standard of putting the interests of the customer before their own. The problem with this latter standard is how far it extends. For example, is an originator who represents a lender who has higher rates than competitors required to tell the borrower about lower available rates? Are they further required to name those who currently are offering lower rates if they know who they are? If they don’t know who they are, are they required to find that information for the borrower? We think not but these are real issues facing those in California and Minnesota who are governed by a fiduciary standard. Although I agree with requiring higher legal standards than required in the past, a strict fiduciary standard has the potential for putting salespeople into conflicts of interest where obviously there should be none.

      None of this is a matter of education. If education was actually an unusually significant factor in our industry then NRMLA would have some formal education requirement to qualify for the CRMP. The only education that is required to get the CRMP is attending 12 hours of NRMLA qualifying conference hours or obtain NRMLA approved equivalent courses plus three hours in NRMLA ethics. Yet the CRMP requires a minimum of fifty sales of reverse mortgages. This means the alleged best of the best “educators” in our industry may never have gotten an elementary school education. That alone makes the education concept a mockery and the CRMP a very hypocritical mark of educational achievement BUT not of origination experience and tested knowledge about products. Anyone who advertises or uses the CRMP as a mark of educational achievement in their marketing is opening themselves up to accusations of false representation.

      Our industry is based on sales and sales alone. If someone questions that, just look at how we are compensated and how one can achieve higher levels of compensation. This is why HUD and Dr. Stucki promote the idea that counseling should come before application. The education counseling provides is by its very nature far less biased than “the education” of originators even though we still hear some cries of counselors steering borrowers to lenders.

      Education is a key part of any sale of an emerging product. Sellers of cotton gins had to educate cotton farmers on their use when cotton gins were first introduced. Sellers of new medical technology must educate. But no salesperson whose compensation is based on sales is primarily an educator. If education were the primary product we provide then you would hear how the most successful in our industry are former educators. That is not the case. It is sales, sales, and more sales.

      I hope Ms. Warren will go beyond the oversimplified three goals which she has publicly announced for the CFPB and will strongly endorse the position that all mortgage originators must be NMLS licensed no matter who their employer may be. Having some licensed and others merely registered cannot achieve a goal of having an equally and better educated and qualified core of mortgage originators to serve US consumers.

      If the industry does not provide the confidence that our originators are presenting all of the products available through them with full, complete, and adequate disclosure to consumers and without concern for compensation then expect a huge backlash and not for the better. It could set our industry back years. So a better description of what Jeff was doing is making a call to higher ethical standards and business practices, not education — even more so with you.

      • The_Cynic,

        As to the responsibility of a fiduciary not only must the disclosures be full, complete, and adequate, they must also be impartial.

      • Cynic,

        You and I are on the same page. Your reply to me was very good. It was also very thorough. Not to much I could add to it. I agree with your outline. You did very good, you earned a day off on that one. You have a great day.

        Thanks,

        John Smaldone

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