How To Stop The Rip-Offs
January 15th, 2008
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You hear about reverse mortgage horror stories with some frequency — more frequency than ought to be the case. An elderly person gets a reverse mortgage and then gets scammed into an “annuity” with weak terms and terrible prepayment penalties.
There ought to be a solution to these problems, so let me outline an idea.
Long ago the state of Maryland had an official list of radon experts. Consumers were advised to call the people on the list to have their homes checked for radon — a colorless, invisible gas. As it happened, the people on the list were also allowed to make repairs. The result was a huge conflict because testers were able to create business for themselves as a result of their own tests.
I wrote a letter to The Washington Post explaining why radon was a fake worry and suggested — among other things — that those who test should not be allowed to do repairs. The result was that the state of Maryland now has two lists, one for radon testers and one for radon repair folks.
We need something similar with reverse mortgages, perhaps a law which says that no annuity funded in whole or in part with money from a reverse mortgage can have a rate of return which is less than the interest rate of the reverse mortgage — and that if the annuity has a lower rate of return the borrower can terminate the annuity without a prepayment penalty. In addition, we need a law which says that anyone who sells reverse mortgages cannot also sell annuities.
What do you think?
For background, take a look at the recent report run by NBC Nightly News.
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January 15th, 2008 at 8:00 pm
American Reverse Mortgage (ARM) was the first and still probably the only Lender to prohibit by contract the selling of annuities by our Advisors with the proceeds of a Reverse Mortgage. This is in fact the borrowing of money for investment which is almost always a bad idea. It ties up funds needlessly and after interest is calculated on the Reverse Mortgage loan, the interest gained on the annuity is virtually a net loss.
Reverse Mortgage Lenders who conspire with annuity sales agents should be ashamed of themselves at least and banned from the business if possible. For years, ARM has warned NRMLA of this practice by some of the largest Reverse Mortgage Lenders who have invited annuity salesmen to refer their clients to obtain Reverse Mortgages for the sole purpose of buying annuities. The ethical among us must arise and rid this practice from our business now.
ARM challenges all Reverse Mortgage Lenders to join us in prohibiting their employees from selling or assisting in the sale of an annuity from the proceeds of a Reverse Mortgage.
January 16th, 2008 at 9:38 am
Thanks W.L.
If any other reverse mortgage lender has a similar policy please let us know.
January 16th, 2008 at 2:04 pm
As a Reverse Mortgage Specialist for Financial Freedom, I am prohibited from selling any other product to my senior customers. We also have multiple disclosures in our application package that state we do not require, offer or arrange the purchase of annuities, nor do we endorse or recommend the purchase of any such financial product.
January 17th, 2008 at 7:44 am
Catherine –
Thank you.
Anyone else out there want to add their name to the Good Guys list?
February 5th, 2008 at 9:25 pm
This quote comes directly from our corporate blog (Next Generation Financial Services, a Division of 1st Mariner Bank) at http://ngfs.typepad.com
Brett Carter, one of the found partners recently wrote in his state of the industry assessment:
“The other critical component of this trend is the NGFS commitment to “always act in the best interest of the customer”. We need to accept a higher standard for our industry to create positive change as the market is tempted by others who would only lookout for their own interest. Our company is built on the premise that financial service professionals with a broad background and extensive financial knowledge are best suited to provide qualified financial advice. Unfortunately, the recent trend has given those who have had the reverse mortgage industry to themselves the “bully pulpit” to advocate for the reverse mortgage specialist as the only acceptable providers of reverse mortgage originations in an effort to eliminate the multi disciplined financial service provider form the industry. These advocates are embolden by the recent news and are lobbying hard to gain control of the industry. Market conditions continue to mandate the NGFS policy regarding the use of reverse mortgage proceeds. It is against NGFS policy to use proceeds from a reverse mortgage to purchase an annuity. The key regulatory concerns for 2008 will be the use of appropriate investment products, borrower suitability and reasonable income for services rendered by the financial advisor. If you explore the congressional testimony closely, this issue of personal compensation for services rendered by the financial advisor will be a primary concern.”
You can add our name to the good guy list. It is against our policy to use reverse mortgage proceeds to fund annuities.
Thanks,
Valerie VanBooven RN, BSN
Director of Marketing and Long-Term Care
Next Generation Financial Services, a Division of 1st Mariner Bank
February 25th, 2008 at 9:59 am
I have always held a firm belief that borrowers should never be encouraged to take a lump sum distribution from a reverse mortgage and invest into an annuity. On top of the net loss when comparing the interest accrued on the reverse mortgage with the interest earned on the annuity, there is also the issue of surrender charges. To me, it looks like you are taking money that is currently illiquid and simply moving it to another illiquid investment vehicle with the primary goal of generating a commission. Reverse mortgages and annuities in and of themselves can play a vital role in improving a client’s quality of life. However, they both have a little cloud over them due to agents who sell them to people who don’t need or benefit from them. As they say, “If all you have is a hammer, everything starts to look like a nail.”
Derek Bough
Bridges Financial
March 3rd, 2008 at 1:09 pm
I have closed many reverse mortgages for companies including American Reverse. I have always put my clients interests first. I am a licensed Life/Health agent and have never seen an occasion in which it was beneficial for a person to place a lump sum withdrawal from a reverse mortgage into a deferred annuity much less an immediate annuity. The reverse mortgage tenure payment always wins when you run the numbers. Besides, I always run a personal and financial profile to help the customer determine if it is beneficial for their circumstances. Often, I find that the customer seeking the reverse mortgage intends to move within the next couple of years. At which point I will point out that the costs incurred for closing the deal can be extreme and there may be other, better options. Mr. Pulsipher is an honorable man and I will attest to the fact that as a loan officer for American Reverse we never pursued a reverse mortgage loan opportunity unless it was in our clients best interests.