Reporting in The Washington Post, contributor Tom Kelly suggests that recent exits from the reverse mortgage market by Financial Freedom, Bank of America and Seattle Mortgage are the result of the new compensation rules.  He states that it is "curious how companies promote the launch of a new product or program but do little to inform consumers when it is no longer available."


His comment is somewhat "curious" as it suggests a lack of understanding of business operations.  Companies generally do not initiate large scale public relations campaigns on reductions in their operations unless necessary to respond to significant media coverage of their operations.  Exits by these firms, while big news to the reverse mortgage sector, were not widely covered in a way that necessitated them addressing their business decisions beyond the press release announcements provided.

Kelly's assumption that these firms exited the reverse mortgage business due to the new compensation rule is even more difficult to understand.  The suggestion is made in a single sentence, but he does not provide additional information as to the basis of the claim or any further information to support it.

In speculating reasons why these firms chose to exit the reverse mortgage business, many could be suggested to be related to the larger financial and mortgage crisis and resulting regulatory reforms.  This crisis has forced many organizations to reduce product offerings due to the credit markets and the re-evaluation of their risk management.  Additionally, the current government environment and the debate over the appropriate level of government involvement in the mortgage financing market may have raised questions for these firms about the future of the HECM product in its current form.  Further, the firms simply could have evaluated their opportunities and determined that other channels better served their organizational goals and called for a reallocation of resources.  However, there is little rationale to support a claim that that loan originator compensation was a large contributing factor to these business decisions. 

Kelly also suggests that the elimination of the jumbo reverse mortgage market helped lead to the downfall of Financial Freedom.  He notes that Financial Freedom's Cash Account was the first jumbo product introduced.  The credit crisis wiped out the market for jumbo products in 2008, to which Kelly indicates that Financial Freedom never recovered.  However, he fails to note that Financial Freedom was the biggest wholesale producer of reverse mortgages, HECM and jumbo's and their downfall can be more attributed to the failure of IndyMac than the withdrawal of the jumbo market. 

OneWest acquired Financial Freedom as part of the acquisition of IndyMac Bank.  Since that time, OneWest has been aggressively marketing themselves as a "community" bank that offers its banking customers jumbo forward mortgages that are in limited availability elsewhere.  The bank really had only ever expressed tacit commitment toward their reverse mortgage entity and, in hindsight, it appears that reverse mortgages never became central to their long-term goals.