The Closure of Live Well Financial: The Story So Far

Once one of the top 10 reverse mortgage lenders by volume, the closure of Live Well Financial was as swift as it was unexpected. While the dust has yet to completely settle on this story, numerous legal proceedings extending out of the closure and ongoing investigations by financial regulators and federal law enforcement have further complicated and expanded the scope of the ongoing stream of events.

Taking a step back to chart the path of Live Well’s closure may be necessary for some when just considering how much has already taken place. To that end, RMD has compiled the story as it is so far concerning the abrupt closure of Live Well Financial: how it happened, what the company’s exit has done to the reverse mortgage market, and what still needs to be determined.

The closure

The business climate for Live Well Financial leading up to the moment of closure was generally prosperous. While no company has been immune from Home Equity Conversion Mortgage (HECM) program disruptions – particularly as it relates to lowered principal limit factors (PLFs) and the introduction of a collateral risk assessment – market data indicated that Live Well was performing well when compared directly with its competitors in the reverse mortgage marketplace.

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According to data from April – the last full month that Live Well was in operation – the company had placed number 7 on Reverse Market Insight’s list of the top 100 reverse mortgage lenders for the month, though the company only originated just over half the amount of loans it did compared with the same point in 2018, 350 versus 605.

On Thursday May 2, however, Live Well’s employees were informed by company management that the company would be ceasing operations entirely the next day. Employees were given no advance notice that the closure would be taking place, which would eventually lead to the first of multiple lawsuits that would arise out of the situation.

Live Well’s wholesale partners were informed of the closure shortly thereafter by their account executives. RMD learned that a number of forward loans in process with Live Well at some lenders would have to be resubmitted to another lender. The same scenario played out with other loan officers on the reverse side of the business.

The circumstances

Live Well confirmed its closure shortly thereafter on its official website, which said that originations were ceasing due to “unexpected circumstances.” The sudden closure included the layoffs of more than 100 workers, which included company CEO Michael Hild. A letter submitted to Virginia state employment officials written by Paula Foster, Live Well Financial’s vice president, controller and human resources director, shed some light on the reasoning behind the company’s sudden closure.

“Due to sudden and unexpected developments in the markets for certain financial assets the company uses as collateral for certain credit facilities that provide this liquidity, these lenders have reduced significantly the amount of liquidity they make available to the company,” wrote Foster.

Reduction in credit availability coupled with challenging mortgage market conditions and unspecified regulatory issues ultimately resulted in the insufficient availability of cash to continue operating, necessitating immediate closure, she wrote.

Foster also specified that the circumstances were so sudden that Live Well was unable to inform its employees of the closure since it could not “reasonably foresee these circumstances.” A failure to provide employees with at least 60 days’ notice prior to laying them off is what ultimately led to the first lawsuit to spin out of Live Well’s closure.

Class action lawsuit

On May 10, just a week after the company’s closing, a former employee who worked in Live Well’s Richmond, Va. headquarters as a loan account manager filed a class action lawsuit in the U.S. District Court of Delaware seeking 60 days of wages and benefits, alleging termination without cause and notice as required by law.

Since both the plaintiff and other similarly-situated employees were not given 60 days advance written notice of their terminations by Live Well, the company did not observe the legal requirements specified in the Worker Adjustment and Retraining Notification (WARN) Act, the lawsuit alleges. The number of former employees in the class the suit is seeking remedies for is, “so numerous that joinder of all members is impracticable,” according to the court filing, but it does list the estimated total of affected former employees at “about 125 individuals.”

While Live Well remained largely quiet through both the closure and the resulting legal proceeding, the company did ultimately file an official challenge to the validity of the suit the following month. The basis of their challenge also rests in the WARN Act, specifically two exceptions that it allows for in the case of employee dismissals without notice.

The “faltering company” exception would technically allow Live Well to dismiss employees without prior notice if it can prove it was doing everything within its power to secure financing in an effort to remain in business. The “unforeseeable business circumstances” exception also allows for no-notice dismissals if the company had no reason to believe that a closure would take place. Both of these exceptions were cited in Live Well’s challenge to the suit, but as of press time the matter is still ongoing, based on court documents.

Creditors file their own suit

After Live Well’s closure, the company’s creditors began to look to the company to fulfill its outstanding financial obligations. When this wasn’t done to the creditors’ satisfaction, one filed suit and was shortly followed by several other creditors, united in an effort to force Live Well into bankruptcy through the Chapter 7 process. Chapter 7 would appoint an independent trustee to oversee the liquidation of the company’s assets, the sales of which would be used to pay back the company’s creditors.

First, creditor Flagstar Bank sought repayment of more than $80 million in delinquent loans and interest, according to a court filing made with the U.S. District Court for the Eastern District of Michigan, seeking to compel former Live Well CEO Michael Hild to repay principal, interest and expenses, comprising a warehouse loan and a commercial loan.

In the latest filing dated June 26, Hild responded contending that the damages Flagstar incurred were far less severe than the company had stated and requested the court to dismiss the claims with prejudice, so they could not be brought again. An official response to this request has yet to be filed as of press time.

Then, three of the company’s former creditors sought to use the court system to force the remains of the company into involuntary bankruptcy, using apparent investigations being made by regulators and federal law enforcement as reasoning for seeking the court-supervised liquidation under Chapter 7 of the bankruptcy code. Flagstar was joined in filing this suit against Live Well by Mirae Asset Securities Inc. and Industrial and Commercial Bank of China Financial Services LLC (ICBCFS).

Apparent investigations by federal authorities

The motivation for this suit, the creditors contended, partially came from apparent investigations by federal financial regulators and law enforcement.

“The Petitioning Creditors are not the only entities concerned about Live Well’s past and current practices,” says attorney Adam G. Landis in a separate filing in the bankruptcy case. “Each of the Petitioning Creditors has been contacted by one or both of the Securities and Exchange Commission (SEC) and the Federal Bureau of Investigation (FBI) regarding Live Well and Mr. Hild, and each is cooperating in those entities’ investigations, including by producing requested documents.”

In this filing, the counsel for the creditors say that intervention by the bankruptcy court is important in order to compel what remains of the company to cooperate.

“In addition, upon information and belief, Live Well, at Mr. Hild’s direction, has taken numerous actions that have served to protect and promote Mr. Hild’s personal interests to the detriment of Live Well and its creditors,” the filing reads. “Mr. Hild can be expected to continue to do so absent this Court’s immediate intervention.”

While Live Well did file an objection in the case by saying that a lack of communication was not necessarily an indicator of wrongdoing, attorneys for the company state that Live Well was working to liquidate its assets outside of the bankruptcy process. Nevertheless, the arguments by the creditors and their legal teams were apparently effective in convincing the presiding judge that Chapter 7 was the best path forward.

It was also around this time that the Government National Mortgage Association (GNMA, or “Ginnie Mae”) revoked Live Well’s status as an issuer.

Forced bankruptcy

Shortly after an additional creditor joined the suit against Live Well, the presiding bankruptcy court judge ordered Live Well into Chapter 7 bankruptcy protection, while also appointing an interim trustee to oversee the company’s remaining operations during the associated liquidation process. On July 1, Judge Laurie Selber Silverstein granted an order for relief under Chapter 7 of Title 11 of the United States Bankruptcy Code. While Live Well had a right to respond to the involuntary petition which would force it into Chapter 7, court documents reveal that it never did so.

As of press time, this is the latest development in the ongoing story related to Live Well’s closure. RMD has reached out to multiple current and former Live Well executives since first getting word that the company had ceased originating new loans, but we have yet to receive an official response related to the confluence of events that both led to, and spun out of Live Well’s abrupt May 3 closure.

Effects on reverse mortgage market

The sudden exit of a top 10 reverse mortgage lender is an undoubtedly disruptive occurrence in the market, but is unlikely to have pronounced long-term consequences in the affairs of the business, according to RMI President John Lunde.

“I would expect there to be disruption, but relatively minimal from a volume perspective given that [Live Well] were doing wholesale and buying leads on the retail side,” Lunde told RMD in mid-May. “[Live Well’s exit] takes a potential bidder out of the market for purchasing leads, but those leads get created and sold to someone else unless the removal of one incremental buyer notably impacts the clearing price for those leads, which I see as unlikely.”

More disruptive to the industry may be the displacement of Live Well’s former employees, but in the case of its former lending executive team and as many as 50 former sales and operations employees, Austin, Texas-based lender Open Mortgage hired them in an effort to expand its own retail, wholesale, principal agent and closed-loan seller mortgage channels.

“Gaining these new team members just furthers our goal to continue growing in our capabilities,” said Open Mortgage CEO Scott Gordon to RMD after the hirings were announced. “The more minds we have working towards this target, the better our coverage and service will be.”

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  • The article is the most up to date information most of us have on the Live Well situation. As to the last part of the article, it is too naïve and too friendly to the interests of the industry. In other words, no third party without direct or indirect financial interests in the industry has stepped forward to present its analysis of the situation.

    Combining the published problems of the Live Well case with those of the RMS case pose a present perception problem that could grow into a much bigger issue. Since there is no information detailing any possible legal violations, either criminal or civil, the impact of that situation deserves a second section in this comment.

    The real threat to the industry from Live Well may be not so much to HECM volume, as it is to proprietary.

    As one long-time Florida reverse mortgage broker tells me almost whenever we speak, the biggest problems for the industry have come from perception, and seldom from actual events.

    If proprietary reverse mortgages are not insured by FHA (for clarity, AND they are NOT), when two very significant industry companies fall apart before our very eyes without much explanation from their respective managements, imagine the perception of consumers who understand the significance that tying together the commonalities of there two matters brings. It would not seem to exude confidence that proprietary reverse mortgage products are safe. Tie that into the fact that monolithic entities that originate reverse mortgages have those operations owned in expendable subsidiaries.

    Then there is the issue that few, if any, reverse mortgage entities provide audited financial statements on just their reverse mortgage operations, leaving industry originators no real means to attest to the financial strength of the entities offering proprietary reverse mortgages. Then the question arises about public data on the results of stress testing for what occurred in just the Live Well case and in the RMS cases.

    So while it is highly unlikely that HECM endorsement volume may go substantially untested, can the same be said for proprietary reverse mortgages, especially when there are so many questions neither the management of Live Well nor RMS have addressed? How about the immediate response of the industry having its only ethical guidance essentially ignore the need for audited financial statements or stress testing by the lenders we are depending upon to supply the proprietary reverse mortgages needed to grow out this end of the industry. There are three ways to respond about this problem, proactive, reactive, and passive. Yet despite the financial disaster that was RMS, where was the industry in providing guidance to its proprietary reverse mortgage suppliers about the need for financial transparency and voluntary stress testing? One could easily look at industry reaction as passive, waiting until all significant facts have presented themselves. Are any of these potential perception issues difficult for anyone else, especially, when it comes to the incubation and early maturity phase of proprietary reverse mortgages? It is hard to believe that the industry is not consumed with addressing these issues, especially since many in the industry are taking the position that proprietary reverse mortgages are its way forward.

    After three decades we still do not seem to believe that even false perceptions can do real damage to the industry. Like the one: “The bank is doing this for you so that your house will go to the bank rather than to your heirs.”

    Just the whiff of scandal for now?

    SEC and FBI investigations? How great does the stench of the spoiling bait have to become before industry detractors bring this up? OK, if the news in the recent USA Today article was not good for the industry, imagine how even just the hint of possible wrongdoing by Live Well brought forth through (for now) alleged investigations by BOTH the FBI and the SEC will appear to seniors. Yeah, there was no uproar over the major penalty issued to RMS by HUD but that scandal is much different than possible or even actual investigations by the FBI and the SEC. But even if these agencies find absolutely nothing wrong with the conduct of Live Well management, will current consumer perception of the industry be improved? It is doubtful if many seniors are paying attention to the Live Well situation.

    Conclusion

    Action towards supplying confidence in industry proprietary reverse mortgage suppliers, needed proactive steps months ago. Those steps do not appear to have even been addressed. While that perception may be totally wrong, where are the facts showing that perception to be without merit? Neither Chris Clow or John Lunde point that out. Are we expected to know these things by some warped idea of osmosis? Or was industry leadership really that passive?

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