Lenders are finding that more seniors are turning to Federal Housing Administration-insured reverse mortgages as a last resort to their financial problems, according to Generation Mortgage chairman Jeff Lewis.
"The only people using reverse mortgages are near the end of their rope," he said. "That is not healthy for society, not healthy for seniors and not healthy for the reverse mortgage market."
Lewis, whose firm is based in Atlanta, noted that only independent third-parties can provide financial counseling to seniors due to cross-marketing and referral fee restrictions that Congress imposed on the FHA's 'Home Equity Conversion Mortgage' program.
Lewis said the 2008 law is "extremely open ended and vague" and the Department of Housing and Urban Development has not issued regulations to provide any clarity. He doesn't expect HUD to issue a rule because the agency doesn't have authority over insurance or securities firms.
The reverse mortgage lender noted that banks cannot market HECMs aggressively to their customer base because of the cross-selling prohibition. And insurance agents selling long-term health care plans cannot receive a fee from introducing a senior to a reverse mortgage.
As a result, HECMs are being marginalized when it comes to retirement planning. Lewis said some flexibility is needed when it comes to counseling that also protects seniors from being taken advantage of.
"We are trying to create opportunities for seniors to use reverse mortgage as part of a comprehensive financial plan that maximizes their financial health," Lewis said.
