Navigating the Regulatory Maze of Reverse Mortgage Referrals

Back when she worked as a loan officer, Longevity Funding Task Force chair Shelley Giordano saw referral pipelines that would be much harder to open in today’s more tightly regulated climate.

“Branch managers were in contact with people who could bring reverse mortgage clients to us,” Giordano told an audience of industry professionals during a panel discussion at the National Reverse Mortgage Lenders Association’s eastern regional meeting in New York last month.

Nowadays, it’s not always clear to people who work with reverse mortgages what they’re allowed to discuss on the job. While some loan officers still use referrals from outside professionals, many broker-dealers don’t allow their employees to discuss Home Equity Conversion Mortgages at all — and regulatory requirements can be triggered by a single conversation.

“If you’ve been out calling on financial advisers, then you’ve run into the maze of licenses, registrations, and designations based on who’s responsible for what,” said Giordano.

Roughly 65% of the net worth of retired people is tied up in their homes, Giordano said. Outside of purchased leads, constraints on the types of relationships that reverse mortgage companies are permitted to form with outside professionals can make it make it tough to maintain contact with homeowners. This can pose a challenge for professionals who want to help older homeowners use HECMs to fund caregiving needs and other aging-in-place costs.

Giordano and two other industry experts outlined some of the ways to create ethical working relationships between industries:

Learn your partner’s rules. Broker-dealers, investment advisors, and insurance agents must follow their own set of regulations. Professional responsibilities can vary, too. The Securities and Exchange Commission regulates investment advisors, for instance. You may not be one, but once you start offering investment advice, that introduces a fiduciary responsibility to the mix.

Take care when combining services. NRMLA general counsel and Weiner Brodsky Kider, PC, founding member Jim Brodsky says his firm advises clients not to “mix and match” services when working with outside professionals. “If you’re doing a marketing services arrangement with one business partner, just do marketing. Don’t mix that with leads,” he said. “Only do one structure with each counter party.”

Compensate with caution. There are also different regulations that touch on how to compensate other professionals for business leads. Financial advisors are a good source of information on potential borrowers, but if compensation isn’t handled properly, it can trigger penalties. Depending on what state you’re in, you could also come across rules that prevent professionals from offering a product to a senior before they elect to take out a reverse mortgage.

Additionally, the Real Estate Settlement Procedures Act (RESPA) prohibits impermissible referrals of mortgage business. But there are still ways to be properly compensated, according to Weiner Brodsky Kider’s Jim Milano — for instance, by creating a salaried position for an originator as a mortgage broker.

“There’s been a great deal of discussion over the years of how reverse mortgage companies and reverse mortgage originators can [be] better partners with other financial professionals in order to create additional channels or more sources for reverse mortgages,” Milano said.

While he agreed that more effort should go into educating financial planners, he said: “It looks like progress is being made.”

Written by Clare Curley

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