As Cost of Compliance Goes Up, Is Direct Mail for Reverse Mortgages Dead?

It’s no secret that direct mail has its fair share of compliance costs, and that the process of launching a campaign can be complex when various state regulations are considered. And regulators may be getting even more vigilant, according to some in the industry, which may make it more appealing to spend marketing dollars elsewhere.

Several examples of direct-mail-gone-wrong have plagued reverse mortgage lenders, and have cost companies thousands of dollars in fines and efforts to recover after non-compliant campaigns. The initial financial shock, however, may just be the beginning.

“Direct mail is so difficult to do correctly and still get a response rate to be effective,” says Teague McGrath, VP marketing for American Advisors Group. McGrath notes the compliance factor in getting a good response rate. But, he says, some companies may not have many other options, with the cost of TV and other advertising being so much higher.

“The money is bad enough” says Jim Milano chief counsel for the National Reverse Mortgage Lenders Association. “But the biggest problem is that states have gotten more aggressive on taking enforcement action. They used to say, ‘Stop doing this.’ Now, it’s a cease and desist order. Once you do that as a licensed mortgage company, you have to report that. That’s one blemish on the record, and then you have to report that to everyone else.”

Milano notes what he has heard from reverse mortgage clients: that the more effective a direct mail piece is, the less compliant it’s probably going to be. “Once you start putting things in regulatory compliant language,” he says, “The business people we’ve talked to say it detracts from the message.”

Further, says Milano, “These direct mail pieces have a very long shelf life.” He notes a case where a direct mail piece from 2006 resurfaced and was sent in to a regulator by a senior in 2008. “They had since made substantial improvements,” Milano says, and yet the questioning still took place two years after the fact.

“It’s worth the time and money you’ll pay to have it reviewed,” he says. “At least you can say, ‘We had counsel review this.'”

Companies like AAG and Great Oak Lending have seen past campaigns botched by third-party marketing companies that claim to handle the compliance aspect of the mailers for reverse mortgages. But when it comes to accountability, the lenders are still on the hook.

Earlier this year, AAG CEO Reza Jahangiri told RMD about a direct mail campaign the company launched, which was sent by a third party and was later found to be non-compliant. Jahangiri said the direct mail not only cost the company from a financial standpoint, but the impact on the company’s reputation was a separate challenge. The increasing attention of regulators ultimately led, in part, AAG to devote resources to other marketing efforts.

“I’ve heard people saying ‘We’ve gotten away from direct mail marketing because it’s gotten us into a lot of trouble,” says Milano. “[They look to] tv, radio, or just buy leads now.”

Cooper and Shein, LLC (dba Great Oak Lending) experienced a similar struggle after being fined and put on probation following a limited distribution mailing that was used by one employee acting independently without any knowledge or approval from owners and managers of the company in early 2010. Today, Great Oak Lending CEO Josh Shein says the company − which is now part of 1st Maryland Mortgage Corp− is putting its marketing efforts elsewhere.

“We haven’t done direct mail in a good amount of time,” says Shein. “In 2011 we haven’t done any.” Shein says the company is busy with other methods of advertising. “In the old days people didn’t pay as much attention to compliance,” he says.

While there are a few success stories with direct mail, many seem to be going in the other direction.

“It’s really a domino effect,” says Milano of the potential problems that can stem from compliance issues. “Before you know it you’ve got huge problems on your hands.”

Written by Elizabeth Ecker

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