Selling more than loans
This article appeared in According to the complaint, $20,500 from the mortgage proceeds was paid to Rivera's associate, James A. Walker, a consultant and licensed California attorney. Walker claimed that his plan would ensure that they prequalified for government benefits, including paying the cost of an assisted-living facility if needed. At the time, the California attorney general's office was already investigating Walker concerning his Medi-Cal advising business. Under a 2008 settlement, without admitting guilt, he and his business agreed to change business practices and pay a civil penalty of $165,000.
The Posadas' lawsuit charges that Rivera and Walker defrauded the couple "by having them obtain expensive and unnecessary reverse mortgages" for the purpose of paying "grossly excessive fees to fictitiously 'prequalify' them for Medi-Cal" and to purchase deferred annuities, which the complaint says are "inappropriate investments for seniors." Walker's attorney did not respond to our requests for comment, and we could not locate Rivera.
Recently strengthened federal laws to curb the sale of other financial products along with a reverse mortgage, called cross-selling, haven't been sufficient to stop the hard-sell tactics. Lenders want to enlist insurance agents because they already have established trusted relationships with the clients that reverse-mortgage lenders want to reach: seniors with significant equity in their homes.
"It's laughable to think this change in the law will stop anyone from selling a senior a reverse mortgage primarily to get access to money that can generate sales commissions for them through sales of insurance products," says Neil Granger of Oakland, Calif., who sold life insurance for more than 20 years before becoming a consultant and expert witness on behalf of victims in annuity- and insurance-fraud cases. "A sophisticated agent will just say, 'Of course you don't have to buy an annuity with the money you're getting, but let me show you why I think you should.'"
Hawaii's insurance commissioner, J.P. Schmidt, says he is investigating 15 cases that have occurred over the past four years in which insurance agents sold seniors reverse mortgages and at the closings gave the borrowers stacks of papers to sign that they didn't realize included agreements to use some of the mortgage proceeds to purchase high-commission annuities.
Granger says it is not unusual to see $15,000 to $20,000 in commissions for a package of a reverse mortgage and some kind of insurance. "It comes out of the client's pocket whether they realize it or not," he says.
Despite the law, reverse-mortgage lenders are actively recruiting insurance agents to market their loans, emphasizing the attractive commissions they offer. In a recruiting e-mail recently sent to a licensed insurance agent, reverse-mortgage specialists Senior American Funding Inc. in San Diego proclaims: "We have loan originators making between $25,000 to $50,000 a month! We want you to be one of these agents." Promotional materials urge the agent to buy a "Reverse Mortgage Success Training Kit" that will demonstrate how to "overcome objections such as 'The fees are too high' or 'I want to think about it.'"
The code of ethics of the National Reverse Mortgage Lenders Assocation permits cross-selling if lenders meet certain conditions, such as ensuring that the financial products being sold "provide a bona fide advantage" to the customers, though "bona fide advantage" might be open to interpretation.
According Burns at the FHA, "Saying we don't want the same company or same person to be selling both products is a worthy goal, but it's difficult to achieve because how a consumer uses the reverse-mortgage proceeds falls outside of FHA's jurisdiction, as does oversight of insurance companies, since they're regulated at the state level."
Addressing such regulatory issues might be a complex matter, but there is one rule regarding cross-selling that should be very easy to communicate, according to John Lunde, a former executive at Financial Freedom who is now president of Reverse Market Insight, a reverse-mortgage research and advisory firm in Aliso Viejo, Calif. "You should not take the proceeds of a reverse mortgage to purchase any kind of deferred financial product," he says. "I've never seen a situation where that makes sense for anyone other than the salesperson."
