Navigating the Regulatory Maze of Reverse Mortgage Referrals

Back when she worked as a loan officer, Longevity Funding Task Force chair Shelley Giordano saw referral pipelines that would be much harder to open in today’s more tightly regulated climate.

“Branch managers were in contact with people who could bring reverse mortgage clients to us,” Giordano told an audience of industry professionals during a panel discussion at the National Reverse Mortgage Lenders Association’s eastern regional meeting in New York last month.

Nowadays, it’s not always clear to people who work with reverse mortgages what they’re allowed to discuss on the job. While some loan officers still use referrals from outside professionals, many broker-dealers don’t allow their employees to discuss Home Equity Conversion Mortgages at all — and regulatory requirements can be triggered by a single conversation.


“If you’ve been out calling on financial advisers, then you’ve run into the maze of licenses, registrations, and designations based on who’s responsible for what,” said Giordano.

Roughly 65% of the net worth of retired people is tied up in their homes, Giordano said. Outside of purchased leads, constraints on the types of relationships that reverse mortgage companies are permitted to form with outside professionals can make it make it tough to maintain contact with homeowners. This can pose a challenge for professionals who want to help older homeowners use HECMs to fund caregiving needs and other aging-in-place costs.

Giordano and two other industry experts outlined some of the ways to create ethical working relationships between industries:

Learn your partner’s rules. Broker-dealers, investment advisors, and insurance agents must follow their own set of regulations. Professional responsibilities can vary, too. The Securities and Exchange Commission regulates investment advisors, for instance. You may not be one, but once you start offering investment advice, that introduces a fiduciary responsibility to the mix.

Take care when combining services. NRMLA general counsel and Weiner Brodsky Kider, PC, founding member Jim Brodsky says his firm advises clients not to “mix and match” services when working with outside professionals. “If you’re doing a marketing services arrangement with one business partner, just do marketing. Don’t mix that with leads,” he said. “Only do one structure with each counter party.”

Compensate with caution. There are also different regulations that touch on how to compensate other professionals for business leads. Financial advisors are a good source of information on potential borrowers, but if compensation isn’t handled properly, it can trigger penalties. Depending on what state you’re in, you could also come across rules that prevent professionals from offering a product to a senior before they elect to take out a reverse mortgage.

Additionally, the Real Estate Settlement Procedures Act (RESPA) prohibits impermissible referrals of mortgage business. But there are still ways to be properly compensated, according to Weiner Brodsky Kider’s Jim Milano — for instance, by creating a salaried position for an originator as a mortgage broker.

“There’s been a great deal of discussion over the years of how reverse mortgage companies and reverse mortgage originators can [be] better partners with other financial professionals in order to create additional channels or more sources for reverse mortgages,” Milano said.

While he agreed that more effort should go into educating financial planners, he said: “It looks like progress is being made.”

Written by Clare Curley

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  • ok, I give up! how does one “compensate” an outside referral partner, financial planner, cpa, real estate agent, outside mortgage representative… anyone?

  • “If you’re doing a marketing services arrangement with one business partner, just do marketing. Don’t mix that with leads,” he said.

    What am I missing here? Isn’t the purpose of doing marketing to generate leads? Thanks.

    • Bill,

      We buy leads from those who seek out and sell leads; they are not the advisers to the leads on confidential financial matters. The lead providers rarely have any other association with their leads beyond acquiring them through their marketing efforts. The leads hopefully know or should know they are nothing more than leads. They should have no expectation of privacy in their communication with the lead generator, if the lead generator is not using some type of deceptive practice. I have found few lead generators who are not forthright in their representations to leads.

      On the other hand, compensating a professional for a referral to a client for whom that professional provides “confidential” financial advice has a terrible “odor” to it. One wonders if the confidential financial information of clients is for sale by that adviser. It sounds and “smells” like some kind of a corrupt practice on the part of the financial adviser. If I heard of one of my financial adviser being paid by a salesman to approach me without my foreknowledge and approval, I would find another financial professional. How about you?

      Those who sell client information generally do not see that is what they are doing. Their justification is that they are spending valuable time trying to help the client and are being compensated by a third party rather than seeing their client pay for this service; they are saving the client money. Yet does the financial adviser reveal this arrangement with the salesperson/originator to their client before disclosing any information about the client to the salesperson so that the client can object if he/she so desires.

  • “Additionally, the Real Estate Settlement Procedures Act (RESPA) prohibits impermissible referrals of mortgage business. But there are still ways to be properly compensated, according to Weiner Brodsky Kider’s Jim Milano — for instance, by creating a salaried position for an originator as a mortgage broker.”

    Different thread – This is a new one to me, that there are ways for others to be paid for referrals. Is he saying that if my company is willing to set me up as salaried, I can then pay others for leads and not be in violation of RESPA?

  • Somewhat off topic, but related to compensation, I have heard there is a movement afoot to compensate for HECM ARMs the same as for HECM – Fixed, due to anti-steering issues. If I do my math correctly, and assume one is getting paid 2% or less for fixed, and is helping someone set up a LOC with a minimal initial balance of $10,000, doesn’t this result in compensation of $200 or less? Personally, with the hours committed, this would butt up against minimum wage laws…Anyone heard similar foolishness?

  • This is a great article, one that I am going to keep. The information Shelley Giordano outlined could be so useful to all of us when we are calling on the professional sector. Especially those professionals such as financial planners, financial advisors, insurance agents ETC.

    There are so many different rules and regulations governing the financial planing and insurance industry. As an example, there are different regulations governing fee based financial planers, versus commission based!

    Jim Milano, who I know well with, Weiner, Brodsky & Kider, gave very good advise we all need to pay attention to!

    Now, Bill Parker and 2bmagoo4u brought up good points that were not addressed. I would love to see Shelley answer those questions?

    John A. Smaldone

    • John,

      These articles were not written on Mt. Sinai. So be careful you and not making false assumptions as to what Shelley might or might not have stated. I would verify with Shelley if that is what she intended to be taken away from the meeting and if she has anything to add, modify, or delete from what it is that is claimed she stated.

      The same goes for any article or any person quoted in this or any other publication.This is not to say what is reason is in the least way misstated but the speaker could have said something one way and when written by the author, presented in a different way with a slightly or completely different connotation.

      I hope that helps.

      • Carmine,

        It does help, I appreciate you keeping your eye on the comments.

        You make it a great day for yourself,


  • As a CPA who has never sold insurance products or securities, I would throw any salesperson/originator out of my office who promised me compensation for time spent looking for clients who could use a reverse mortgage. My relationship with my clients was based on confidentiality as stated in my engagement letters with them. This is not an area for compromise for CPAs like me. My engagement letters had a caveat regarding exceptions for legally required submission of such information. Only on rare occasions did legal subpoenas come up and then the matter along with the information in question was submitted to our attorney to handle before the information was required to be submitted.

    If privacy and confidentiality are promised or assumed to be part of the services required of a financial adviser, then those who work with reverse mortgage originators using confidential client information without permission of their clients are asking for potential trouble. If compensation has in anyway been paid to the adviser for the time spent without the prior permission of the client, it is very difficult to see how that is not a violation of the adviser/client relationship if confidentiality was a specific covenant on the part of the adviser.

    In my field, this is called basic client ethical conduct. Some of us would not endanger our client relationships by even approaching them on this matter, particularly if we were being offered to be compensated by the ORIGINATOR for the time we spend on this project. We would rather do our own research.

    It is doubtful if our professional liability insurance carrier would even consider any extension of coverage to compensated services provided to originators for revealing any client confidential data to the originator without prior specific permission of the client. This is getting into very tricky areas of CPA practice when you approach them on a compensation basis.

    It is very surprising and somewhat alarming that the issue of presumed or implicit contracted client confidentiality is not directly addressed in the column above. Yet that is not to say that the speakers overlooked that subject matter.

  • Thank you to all who took the time to think about these issues. Actually, the NRMLA panel addressed two different aspects of engaging with financial “advisors” which is in itself a vague term. Mr. Milano spoke about the need to be careful in considering if and when it is possible/wise/permissible to compensate a financial services professional in any way for participating in reverse mortgage originations. My presentation purely addressed the a.) loss of distribution channels from the banks like Wells Fargo/Bank of America and b.) the reasons why we have had such a difficult time establishing a new distribution channel with financial “advisors.” It is easy to conflate these two concerns but without a doubt, we should defer to legal counsel in regard to propriety of compensating any other source for referrals.

    • Ms. Girodano,

      Thank you for your clarification of what was covered by you and Mr. Milano in that meeting.

      I would add that compensation is a matter that needs to be vetted with the senior management of the adviser (many are employees) as well.

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