As Cost of Compliance Goes Up, Is Direct Mail for Reverse Mortgages Dead?

It’s no secret that direct mail has its fair share of compliance costs, and that the process of launching a campaign can be complex when various state regulations are considered. And regulators may be getting even more vigilant, according to some in the industry, which may make it more appealing to spend marketing dollars elsewhere.

Several examples of direct-mail-gone-wrong have plagued reverse mortgage lenders, and have cost companies thousands of dollars in fines and efforts to recover after non-compliant campaigns. The initial financial shock, however, may just be the beginning.

“Direct mail is so difficult to do correctly and still get a response rate to be effective,” says Teague McGrath, VP marketing for American Advisors Group. McGrath notes the compliance factor in getting a good response rate. But, he says, some companies may not have many other options, with the cost of TV and other advertising being so much higher.

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“The money is bad enough” says Jim Milano chief counsel for the National Reverse Mortgage Lenders Association. “But the biggest problem is that states have gotten more aggressive on taking enforcement action. They used to say, ‘Stop doing this.’ Now, it’s a cease and desist order. Once you do that as a licensed mortgage company, you have to report that. That’s one blemish on the record, and then you have to report that to everyone else.”

Milano notes what he has heard from reverse mortgage clients: that the more effective a direct mail piece is, the less compliant it’s probably going to be. “Once you start putting things in regulatory compliant language,” he says, “The business people we’ve talked to say it detracts from the message.”

Further, says Milano, “These direct mail pieces have a very long shelf life.” He notes a case where a direct mail piece from 2006 resurfaced and was sent in to a regulator by a senior in 2008. “They had since made substantial improvements,” Milano says, and yet the questioning still took place two years after the fact.

“It’s worth the time and money you’ll pay to have it reviewed,” he says. “At least you can say, ‘We had counsel review this.'”

Companies like AAG and Great Oak Lending have seen past campaigns botched by third-party marketing companies that claim to handle the compliance aspect of the mailers for reverse mortgages. But when it comes to accountability, the lenders are still on the hook.

Earlier this year, AAG CEO Reza Jahangiri told RMD about a direct mail campaign the company launched, which was sent by a third party and was later found to be non-compliant. Jahangiri said the direct mail not only cost the company from a financial standpoint, but the impact on the company’s reputation was a separate challenge. The increasing attention of regulators ultimately led, in part, AAG to devote resources to other marketing efforts.

“I’ve heard people saying ‘We’ve gotten away from direct mail marketing because it’s gotten us into a lot of trouble,” says Milano. “[They look to] tv, radio, or just buy leads now.”

Cooper and Shein, LLC (dba Great Oak Lending) experienced a similar struggle after being fined and put on probation following a limited distribution mailing that was used by one employee acting independently without any knowledge or approval from owners and managers of the company in early 2010. Today, Great Oak Lending CEO Josh Shein says the company − which is now part of 1st Maryland Mortgage Corp− is putting its marketing efforts elsewhere.

“We haven’t done direct mail in a good amount of time,” says Shein. “In 2011 we haven’t done any.” Shein says the company is busy with other methods of advertising. “In the old days people didn’t pay as much attention to compliance,” he says.

While there are a few success stories with direct mail, many seem to be going in the other direction.

“It’s really a domino effect,” says Milano of the potential problems that can stem from compliance issues. “Before you know it you’ve got huge problems on your hands.”

Written by Elizabeth Ecker

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  • But this is not unique to direct mail marketing.  It is also true of other media as well.  The problem with Internet marketing (and its subset social media marketing) is monitoring them.  However, it is also true that it is much harder to argue about “it was a long time ago” if it can still be accessed.  While the timing and intent may be true, if it is still accessible, it is still an active marketing “piece.”  While lenders need to be concerned about such matters, originators do as well; after all we are now at the least NMLS registered.
     
    If the industry was serious about compliance issues, the cost of compliance for Internet marketing should be so astronomical it should be cost prohibitive.  This is not like selling hammers and nails on the Internet.  Unfortunately enforcement has yet to catch up.  Today the Internet marketing world is much like the direct mail marketing world of 2005;  Internet marketing is the “Wild West” with little concern for compliance.
     
    The worse part of Internet marketing it is like traveling in the ocean — where there is a growing problem of gathering trash and toxic dumps; on the Internet there is a growing problem of abandoned and old but still accessible sites with noncompliant and just plain bad information still floating out there.  The potential litigation and law enforcement issues with this form of marketing will soon make the compliance risks of direct mail marketing look like a “walk in the park.”
     
    The upfront costs of Internet marketing are so low it is now considered a popular and cost effective media outlet for originators.  With lenders now responsible for overseeing the activities of those to whom they provide wholesale services, will it long be before lenders clamp down on Internet (and social media) marketing especially when it comes to brokers? 

    Not long ago I Googled the name of a discount broker who has been such for several years.  One of the first results was a website that was obviously created by the broker and showed him as an employee of Bank of America.  Within a couple of results below that was a site that declared he was no longer an employee of Bank of America and advised readers to contact a specific individual at Bank of America; it was obviously a B of A sponsored website.  Now how out of date are both websites?

  • We get the message “the house is on fire!”– how about some specifics on non-compliance that stirred up the regulators and caused fines.  And while you’re at it–before you kill direct mail in 5 minutes or less– how about some samples of direct mail that are in compliance and being used successfully. 

    • Regarding compliance, you’ll need to handle that through your own attorney or the compliance department of your employer, this blog likely can’t give legal advice or absorb the related litigation risk.  Regarding what direct mail techniques are successful, that’s a trade secret that any successful business won’t be willing to divulge. 

    • ReverseMe,
       
      Apparently you do not get it.  It is not the fines, penalties, or other less punitive actions of regulators we are concerned about.  It is loss of reputation and trust.  They are harder to earn than the money needed to pay fines and penalties.  Your view is cost in terms of dollars; ours is much, much different.
       
      Peter Bell has stated on many occasions that the reason why Senator McCaskill (D-MO) has such strong reactions against reverse mortgages is because of a mailer her mother received.  Her mother asked the Senator to look it over.  It was filled with language about government benefits, etc.  That literature never resulted in any known fines, etc. but it did create an adversary who by political affiliation and tendencies should be a friend to the HECM program.  Maybe that does not mean much to you but it does to many of us.  I wish she were a friend of the program but not even Peter has been able to gain much ground on that front even though she seems to be pleased with Peter and NRMLA. 
       
      As a good marketer you demonstrate how to overcome objections by a strong offense even if the argument is not very logical or even all that rational or reasonable when you challenge those who are less than enthusiastic about direct mail marketers to provide “…samples of direct mail that are in compliance and being used successfully.”  You need to do that very thing.  Just remember what may be compliant in one state may not be in another.  Then again lenders are not always concerned about legal and regulatory compliance alone but also ethical practices and even their own image.
       
      John Lunde is someone I respect.  I would like to hear from him as to why he liked your comment well enough to mark it as one he liked.
       

    • ReverseMe,
       
      Apparently you do not get it.  It is not the fines, penalties, or other less punitive actions of regulators we are concerned about.  It is loss of reputation and trust.  They are harder to earn than the money needed to pay fines and penalties.  Your view is cost in terms of dollars; ours is much, much different.
       
      Peter Bell has stated on many occasions that the reason why Senator McCaskill (D-MO) has such strong reactions against reverse mortgages is because of a mailer her mother received.  Her mother asked the Senator to look it over.  It was filled with language about government benefits, etc.  That literature never resulted in any known fines, etc. but it did create an adversary who by political affiliation and tendencies should be a friend to the HECM program.  Maybe that does not mean much to you but it does to many of us.  I wish she were a friend of the program but not even Peter has been able to gain much ground on that front even though she seems to be pleased with Peter and NRMLA. 
       
      As a good marketer you demonstrate how to overcome objections by a strong offense even if the argument is not very logical or even all that rational or reasonable when you challenge those who are less than enthusiastic about direct mail marketers to provide “…samples of direct mail that are in compliance and being used successfully.”  You need to do that very thing.  Just remember what may be compliant in one state may not be in another.  Then again lenders are not always concerned about legal and regulatory compliance alone but also ethical practices and even their own image.
       
      John Lunde is someone I respect.  I would like to hear from him as to why he liked your comment well enough to mark it as one he liked.
       

    • ReverseMe,
       
      I consider Dan Mooney at HUD in Santa Ana a real friend of the program.  Yet there is nothing that ticks him off more than a marketing piece which discusses “program benefits” but fails to discuss the loan aspects of a HECM.  He gets frustrated trying to find the right adjectives to express the full extent of his displeasure with those pieces and those who use them.
      Not all fines and penalties issued by all federal and state authorities are necessarily disclosed and even if they are, they are not always publicized. One story about the problem is titled “Four Reverse Mortgage Companies Issued Cease and Desist Orders” and was posted on RMD on September 25, 2008.  The follow up story titled “Interview Series: Lessons Learned From a Direct Mail Campaign Gone Wrong” is very interested and was posted on RMD on March 23, 2011.
      Lance is right that few companies will share their marketing ideas.  That is how they gain and maintain their market share.
       
      I will refrain from telling you my own experiences.

  • With all of the new rules applied to advertising and marketing mortgage products we are becoming very similar to the pharmaceutical industry in the sense much of our contact is in the form of disclaimers. I do not see why direct mailing is any different than other mediums we advertise in. I market to seniors facing foreclosures and must adhere to the Mortgage Assistance Relief Services (MARS) Rule as outlined by the FTC this year as well as any other industry standards. When the MARS rule was first released the compliance office at my corporate office did not know about this. Being accused of wrong doing can be just as damaging to a company’s reputation as having violated a regulation. These are scary times for anyone advertising their mortgage services in the current environment.
      

  • Direct mail is a viable and productive channel for reverse. Does anyone think that other industries don’t face stiff scrutiny when it comes to mail? Look at Medicare! The leaders in Medicare continue to use mail as their primary driver during enrollment season. Reverse receives no less scrutiny than insurance products and other financial services products — the difference? They have a huge head start – the reverse industry has gotten away with years of “shifty” tactics. 

    Focus on making your mail compliant, do your data and targeting homework, utilize good analytics and work on your conversion (pull through) metrics. Mail works when done right.

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