The Ethics of Doing Reverse Mortgage Business



With the release of the Consumer Financial Protection Bureau's (CFPB) reverse mortgage report late June, the need for ethical business practices has become the driving force behind recent activities in the industry.

The National Reverse Mortgage Lenders Association (NRMLA) released an open letter stating the association's commitment to help seniors avail reverse mortgage products based on a solid understanding of how it works, rather than on a short-sighted or distorted awareness. Some industry key players sponsored free training sessions to educate borrowers and encourage practitioners to practice ethical product placement.

Aside from the report, CFPB also published its own reverse mortgage guide for consumers detailing how a reverse mortgage works, alternatives and pay out options.

With the turn of events, the challenge for the industry seems to be the creation of culture that encourages and rewards ethical practices as much as it rewards sales acumen and entrepreneurship. To do this, trade authorities need to start acting like moral compasses. And NRMLA is doing just like that.

As early as 2008, NRMLA published an ethical advertising advisory opinion singling the manner in which industry players should market, advertise and promote reverse mortgage products.

NRMLA pointed out that it is an ethical violation to market reverse mortgage as government loan program or endorsed and approved by the federal government. While the Federal Housing Authority (FHA) insures Home Equity Conversion Mortgage (HECM), it is still a loan originated by a lender. Claims like the aforementioned create misrepresentation. Some seniors ended up availing the program with the thought that the loan came from the government and not from the lender.

Although the exact numbers of reverse mortgage players engaging with this kind of activity are unknown, judging from the findings of CFPB, misrepresentation is the most pervasive ethical violation in the industry.

While the CFPB's report did not consider the senior borrowers themselves as a primary source of information, the real value of the report lies in its potential for increasing industry players' awareness of unethical practices and the industry's need for ethical decision-making processes. Of course, ethical violations are neither new nor unique to reverse mortgage. Different industries struggle to keep them at a minimum. One thing is clear though: as an effect of the CFPB's report, business ethics and corporate social responsibility will gradually be upheld by players paving for the unleash of the industry's famed potentials.

The business ethics problem that befalls the reverse mortgage industry is not extraordinarily difficult to act upon. Practitioners should make it a commitment to avoid claiming something a reverse mortgage is not. The reverse mortgage industry can function ethically, provided an overwhelming majority of practitioners decide to embrace ethical business practices.



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