About three years ago, the Massachusetts attorney general’s office received a complaint from a reverse mortgage borrower, claiming that she had been pressured into taking out the loan and investing the proceeds into annuities on the advice of a financial planner.
It’s an all-too-common scheme that Home Equity Conversion Mortgage advocates warn potential borrowers to avoid. But according to the broker whose company was involved in the complaint, no such pressure existed — and the attorney general’s office was simply looking for a scapegoat.
“I never wavered,” says Alain Valles, president of Direct Finance Corp. in Norwell, Mass. “We did nothing wrong.”
Valles claims to have spent $200,000 of his own money fighting the charge that one of his brokers, Daniel Matthews, conspired with financial advisor James Moniz to force elderly homeowners to take out HECMs and then immediately put the cash into an annuity — all without thoroughly explaining the costs or fees associated with either product.
Valles vigorously disputed those claims, saying he reviewed the reverse mortgage files in question after the initial contact from the state attorney general’s office and found no evidence of wrongdoing. All Direct Finance Corp. borrowers receive mandated third-party counseling, Valles said — which, under Massachusetts law, must be done in person — as well as a briefing from a lawyer at closing with a Direct Finance Corp. representative present.
In addition, Direct Finance Corp. never received any payments from Moniz, or vice versa, Valles said. He classified the relationship between Moniz and Matthews as a professional one, with the pair providing referrals — but not any kickbacks — to each other over the course of many years.
As RMD reported back in 2015, Massachusetts attorney general Maura Healey filed suit against Direct Finance, Matthews, and Moniz for violating state regulations that prevent cross-selling. The charges came back into the news last week after Healey’s office announced a $137,500 with the parties to resolve the case, with the Boston Globe proclaiming that the state settled with a “reverse mortgage broker accused of misleading [the] elderly.” The Globe story specifically calls out a Quincy, Mass. woman who claims she and her since deceased husband weren’t told about the closing costs and other fees associated with a reverse mortgage.
“We found that these defendants took advantage of elderly homeowners who spent decades building equity in their homes,” Healey said in the press release. “My office is focused on stopping the financial abuse of seniors.”
But Valles took exception with the release and the media coverage, saying that his company didn’t pay the state of Massachusetts a cent in restitution, and that only Moniz shelled out the money to end the lawsuit.
“I’d shut the company down before I wrote a check,” Valles tells RMD. “We did nothing wrong. I’d go to trial.”
Healey’s release says that the money will be available to “affected consumers,” which the attorney general’s office will contact shortly, but does not specify exactly which parties disbursed the funds. Valles pointed RMD to an affidavit, signed by Moniz’s lawyer, Simon R. Brown, asserting that all of the $137,500 in settlement money came from Moniz and not Direct Finance Corp. or Matthews.
The state of Massachusetts also imposed certain restrictions on Matthews, Moniz, and Direct Finance “to prevent improper association between the origination of reverse mortgages and the investments of the proceeds in annuities or other investment products.”
This wasn’t the first time that Moniz had attracted the attention of Bay State authorities: Back in 2014, John Hancock, Moniz’s former employer, paid almost $900,000 in settlement money after Massachusetts alleged that the company “unfairly failed to effectively supervise Moniz” and allowed him to sell “unsuitable” products to consumers, including variable annuities and life insurance policies.
In response to the allegations and the reporting on the settlement, Valles set up a website featuring signed affidavits from multiple Direct Finance borrowers who were pleased with Matthews and Moniz’s services and say they never felt any pressure to engage with either. The site also includes a copy of a new disclosure form that all Direct Finance applicants must now sign before closing.
“Direct Finance Corp. is not associated with any financial planners or advisors,” the form begins. “We do not receive any form of compensation from any financial planners or advisors.”
Valles noted that Massachusetts already requires borrowers to sign a form explaining that the “reverse mortgage is a complex financial transaction,” and encourages them to talk over their decision with family members and “others on whom you rely for financial advice.”
And therein lies the challenge for the industry, which is increasingly looking to financial advisors as not just a source of referrals, but as a way of legitimizing reverse mortgages in the mind of a sometimes skeptical general public. Valles said that it’s impossible for him to control what kind of advice financial planners provide to borrowers after closing, but that this scenario still left his company open to state litigation.
“When I say it’s not my job, it’s not that I don’t care,” Valles says of providing guidance to consumers on how to properly use their HECM proceeds. “But that’s not my role.”
Written by Alex Spanko