Written by Jim Milano, as originally published in The Reverse Review.

Over the past several years, much has been written and discussed about how a reverse mortgage might fit into a senior’s retirement plan. From the reverse mortgage press, undoubtedly, a number of efforts are underway to educate financial planners about reverse mortgages and how such loans might work with a senior’s retirement plan.

Educating Versus Compensating

Most of the discussions regarding financial planners in the reverse mortgage industry have focused on educating planners about the uses of reverse mortgages in retirement. Recently, some discussion has focused on how a reverse mortgage company might more effectively integrate financial planners as effective influencers of business. Some frequently asked questions about this effort include:

  1. Can I enter into marketing services agreements or lead sales arrangements with financial planners?
  2. Can I more effectively integrate my reverse mortgage offerings into a financial planner’s services or offerings?
  3. Can I hire financial planners as loan officer employees to offer reverse mortgages?

A fundamental shift in some of these discussions can be recognized, and with it, some old regulatory compliance concerns have reared their ugly head. Further, in recounting the “old regulatory compliance concerns,” be very cognizant that we are, and have been for the past four years, in a very different and highly charged environment where regulatory compliance and enforcement are concerned.

In some circles of the reverse mortgage industry, a fundamental change in the discussion regarding financial planners has been the shift from educating financial planners to compensating them. With compensation, and corresponding affiliations or associations, comes additional regulatory compliance risk.


RESPA is not new. It prohibits impermissible referrals of mortgage business. More recently, marketing services agreements have come under serious attack by the CFPB, both threatened and real, in the form of enforcement actions and compliance bulletins. Properly structured, lead sales arrangements may be a viable solution, but such arrangements have also been scrutinized by the CFPB in at least one recent enforcement action. Further, properly structuring lead sales arrangements brings a number of requirements that often prove unpalatable to the parties proposing such arrangements. Such a structure might include the sale of a list of names for a nominal amount per name, with no endorsement of the mortgage company (which would preclude direct “live handoffs” of each lead); and either that the lead generator is properly licensed under state mortgage laws or does not engage in the solicitation or advertising of mortgages—altogether not easy to do while still maintaining a viable business model.


Then, there is Claire McCaskill—need I say more? In 2008, U.S. Senator McCaskill added a clause to the HECM statute that prohibits HECM mortgagees from associating with those who offer other financial services products unless the mortgagee can prove firewalls and safeguards are in place. Without much clarity in drafting, the so-called “McCaskill provisions” have had a chilling effect on reverse mortgage companies partnering with insurance agents and financial planners. These provisions in the HECM statute, coupled with the fact that FHA lending historically has been a “gotcha” program (in that lenders may not know they have a real problem until years after loans are originated), has made HECM lenders hesitant to partner with insurance agents and financial planners. The McCaskill provisions do not define “other financial services products” other than to exclude title or hazard insurance, and do not define what firewall and safeguards might be adequate. HUD was supposed to define these terms and provide guidance after a market study, but it never published anything further.

State Law Issues

Several states also have provisions in their reverse mortgage laws that prohibit so-called “cross selling” of other financial services products with a reverse mortgage. And at least one state’s laws (California) prohibit insurance agents from offering “other products” to seniors that have a reverse mortgage.

If a mortgage lender will hire financial planners as permanent part-time employee loan officers, several regulatory issues must be addressed, not the least of which is state mortgage licensing. Loan officers generally must be licensed, and either must or should work out of a licensed location, report to a manager and be controlled by the mortgage company. Control over such employees cannot be overemphasized. In a 2014 enforcement action, the CFPB alleged that sales representatives of a settlement service provider were not true employees, and thus fees and compensation paid to the sales representatives for developing settlement services business constituted impermissible referral fees in violation of RESPA. The CFPB alleged that these sales representatives were “sham employees,” notwithstanding the fact that the settlement services provider paid the sales representatives on a W-2 basis. This matter resulted in a very public, embarrassing and somewhat expensive disciplinary settlement.

And, if a mortgage lender will hire financial planners as permanent part-time employee loan officers so that such financial planners can offer “other products” to seniors with a reverse mortgage or after a senior obtains a reverse mortgage, well… see the “McCaskill provisions” above.

Financial Planner Rules

I do not practice in the securities or broker-dealer space, but some reverse mortgage lenders have reported that, in attempting to educate or partner with certain financial planners, the financial planner’s sponsoring company has policies that prohibit such activities by their affiliated financial planners. A mortgage lender should be aware of the rules and policies that potential financial planner partners operate under, as a violation of those policies will not bode well in the face of a complaint.

The Golden Rule

Finally, some HECM loan aggregators that purchase HECM loans have policies in place, and language in their loan purchase and sale agreements, that they will not purchase HECMs if the seller had any involvement with (or provided borrowers with) any financial or insurance product that is directly or indirectly acquired with the proceeds of a reverse mortgage loan. Rumor has it that making and selling loans only to face repurchase demands on those loans is not a good business model.


Sometimes, our ideas are not bad but rather not fully baked or their time has not yet come. Educating financial planners about the possible uses of a reverse mortgage in a senior’s retirement plan is an idea whose time has come. Creating a point of sale whose only incentive is to ask, “What’s in it for me?” is half-baked and very untimely in the current regulatory environment.

The views expressed in this article are those of the author and not of his firm or clients, and is not intended as legal advice nor a solicitation thereof.

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