Ethics in the Reverse Mortgage Business

There is both good news and bad news for the reverse mortgage business.

The good news is that we’ve been discovered. We’ve made ourselves known. The media, elected officials, government executives and academic researchers have all taken note of reverse mortgages and are trying to figure out how the product best fits into society.

The media has been very kind. We have received balanced coverage from outlets across the country explaining the essentials of reverse mortgages and how they help people from newspapers, like The Wall Street Journal, New York Times, and other national and regional publications.

Elected officials, both at the state houses and on Capitol Hill, are recognizing that the home equity wealth possessed by elderly individuals is an important resource in addressing the needs of an aging population.

Policymakers at a diverse range of federal agencies including the Departments of Health & Human Services, Veterans Affairs, Commerce and Treasury are studying if, and how, reverse mortgages should be encouraged.

Economists, gerontologists, and public health analysts at numerous institutions are pursuing academic research on topics inspired by growth in the use of reverse mortgages.

Being discovered brings broader consumer awareness, of course, and a resulting increase in loan production. That, so far, is all good.

Growth is healthy—provided that it is handled by competent companies possessing the utmost integrity and a sense of responsibility to clients, who are knowledgeable in industry affairs and involved in the community. That, in a nutshell, is the core mission of NRMLA—assuring that American’s demand for reverse mortgages can be fully met by companies committed to standards that emphasize the highest ethical integrity, place fulfilling the clients true needs beyond all else, and have a commitment to the communities they serve.

Growth, however, attracts a broad range of individuals and companies into a field, including some who may not fully understand the intricacies of this market, the challenges and respect required in dealing with an elderly client base. This would be bad.

As elected officials and other policymakers learn about reverse mortgages, some see potential benefits. Others recall adverse publicity and perceive the potential for abuse.

Now that we’ve been discovered, reported on, and given support by the political establishment, none want to learn that they might have jumped too soon. Those who have given us coverage or support don’t want to find out that there are more issues here than meet the eye. Any negative development would be widely noticed, leading to our day in the sun rapidly fading away.

One bad apple does spoil the whole bunch when it comes to media relations and gaining the support of politicians. To continue our success, we have to be squeaky clean. No cutting corners. No doing things out of sequence with the regulations, handbooks and mortgagee letters—no matter how confusing all those documents might be.

As the value of reverse mortgages is further recognized, the funding from them will be used more and more to purchase various products including financial services like insurance and annuities, as well as health care services. Individual professionals or distribution networks in those fields might be good natural marketing partners for reverse mortgage lenders.

It is essential that, in any cooperative effort with allied professions, all aspects of the applicable regulations and procedures are fully complied with. Compensation issues are a particular area of concern to which utmost attention to rules must be paid. FHA requirements, RESPA, HUD rules and state mortgage banking laws all come into play here. There is an intricate web of regulation and it is critical that all reverse mortgage lenders pay close attention.

As was said earlier, the good news is that we’re getting the attention paid to reverse mortgages that we’ve been seeking. The bad news, however, is also that we’re getting the attention—as well as the scrutiny that comes along with it.

The reverse mortgage business is being looked at, analyzed and assessed like it never has been before. If we stand up to the scrutiny, our growth will continue unabated. If it is found that lenders work with other parties who do not share our commitment to doing what’s right for the customer, or that lenders sometimes skirt the rules, our future growth will be constrained.

As new lenders enter the reverse mortgage business and competition intensifies, some members might be inclined to develop strategic relationships or enter into referral relationships, and other structures that don’t quite meet the rules. We hope that this doesn’t happen, but am already beginning to see signs that it is.

So, the bad news is actually the same as the good news. We are drawing a lot of attention to reverse mortgages. That’s not really such bad news—as long as we all do the right thing.