If there is one aspect of the Consumer Financial Protection Bureau's (CFPB) report on reverse mortgage that merits some attention, it is the section on emerging consumer protection concerns. The report named two trends that pose considerable risks to eligible homeowner borrowers namely the prevalence of fixed-rate, lump-sum products and the business practices of lead generators. This article aims to explore the latter.
The Function of Lead Generators in the Reverse Mortgage Industry
In the reverse mortgage industry, lead generators are the companies, which collect information from prospective clients, either directly or indirectly. Common sources of information are websites, mailing lists, TV ads, and call centers. With the result of a recent Pew Research Center survey revealing that more than half of American adults aged 65 and older now using the Internet and e-mail on a regular basis, a growing number of lead generators are expected to flock the Internet.
After compiling the information according to certain benchmarks, lead generators will then sell the reverse mortgage leads to either lenders or brokers. After that, the lenders and brokers will pursue the eligible senior homeowner in hope for a closeout deal. Lenders usually utilize snail or e-mail, phone calls and face-to-face meeting.
Age is a common benchmark in reverse mortgage lead generation. Only seniors 62 years and older with equity on their property can be qualified for Home Equity Conversion Mortgage (HECM), popularly known as reverse mortgage. The Federal Housing Administration (FHA) insures HECM.
Types of Leads
As far as eligible senior homeowners are concerned, leads are grouped into two: cold and hot. Cold leads consist names and addresses of senior borrowers who may have or have not expressed interest in reverse mortgage. Hot leads are list of senior borrowers who expressed interest for a reverse mortgage loan. Cold leads are usually cheaper than hot leads.
Leads can also be classified as exclusive and non-exclusive. Exclusive leads are sold exclusively to either a lender or a broker, while its non-exclusive counterparts can be sold to multiple lenders and brokers.
Problems That Arise From Lead Generation
According to the CFPB's report, problems arise when a lead generator put senior borrowers in cold leads list when in fact they have not expressed interest to any reverse mortgage product. This act of deception does not just affect the lender and/or broker, but also the senior borrower. The lender was deceived to pay for something its money is not worth, while the senior borrower receives unsolicited calls and in-person visits. The Federal Trade Commission (FTC) said that from last year, seven reverse mortgage lenders and brokers filed complaints regarding deceptive leads while a senior borrower filed complaint over a continuous solicitation calls for eight months.
Another problem, which falls within the deception fence, is when a lead generator attached an exclusive clause on its leads but failed to deliver. As a result, the lender or broker is faced with a very low conversion rate while the senior borrower is bombarded with a number of calls from salespeople from different reverse mortgage companies. The worse part is when the lead generator into this practice denied the lender a rightful refund. The practice hurts both the market and other industry players.
Ethics Among Reverse Mortgage Lead Generators
Lead generators are vital part of the reverse mortgage industry. They make up the base of the reverse mortgage chain initiating the process that fuels the industry. This is why practices in lead generation can significantly impact the state of the industry in general. Competent lead generation companies, which adhere to utmost integrity and a sense of responsibility to clients, will definitely aid reverse mortgage in the sustenance of its projected growth. In the same token, unethical practices will damage the advances made by the industry. Reverse mortgage lead generators should make it their core value to stick to business ethics in practicing lead generation.
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