Can HECM Regulators Act Unethically Toward the Reverse Mortgage Program? - Skip to content

Can HECM Regulators Act Unethically Toward the Reverse Mortgage Program?


From Dennis Haber, Esq | Courtesy of The Reverse Mortgage Blog

Ethics In HECM Regulation

Ethics In HECM Regulation

I recently spoke on two interesting panels at the American Conference Institute’s two day symposium on Reverse Mortgages. The conference was held at the famed Helmsley Park Lane Hotel in the heart of Manhattan. The conference attracted a virtual who’s who in the mortgage and reverse mortgage industry. The speakers and the attendees formed an eclectic group which ranged from major law firms, title companies, quality control experts, compliance examiners, HECM counseling experts and state and  federal regulators and various enforcement agencies. There was a genuine desire to understand the program so that enacted policy could be effective.

On the first day of speaking, Iwas joined by Dave Adkins, OTS, Matthew Yoon, Esq. and Arthur Axelson, Esq.  I pointed out that HERA could prevent and should prevent the implementation of HUD’s TPO policy until further legislation is enacted.  On the second day, our panel (Neil Garfinkel, Esq & and I) had frank and meaningful exchanges with the audience on some salient ethical issues facing the industry.
I want to address some of the more important ethical rules that, in my opinion, are the linchpin of the reverse mortgage industry. So, what does ethical conduct look like? To get some rudimentary guidance , I went to the dictionary for help. Ethics-1. A discipline dealing with good and evil and with moral duty. 2. Moral principles and practice. I was hoping to get more out of the definition. I then went to Ethical. 1. Of or relating to ethics. Looks like we just did a 360. 2. Conforming to accepted and esp. professional standards of conduct. A little better. Perhaps it is better just to ask What is in the best interest of the customer? It seems that we are getting warmer.
I think that if we look at three different concepts, Welfare, Freedom and Virtue, we can get closer to evaluating particular actions. It seems to me that “ethical conduct” is not black or white. Rather, depending upon facts, situations and the viewpoint of the evaluator, “ethical conduct” can encompass a variety of activity.
I endeavor to broaden this discussion. Typically one looks at the originator for ethical violations. Perhaps it is time to look at the actions  of  regulators for ethical violations.  Now put aside the notion that those that make the rules and the laws cannot act unethically. For didactic purposes, let’s have some fun exploring this  seldom explored avenue.
Let’s first explore the concept of virtue. I want to acquaint you with the Casey Martin story. Casey Martin was a professional golfer with a bad leg (circulatory problems). He requested that he be allowed to use a golf cart during a tournament. The PGA (Professional Golfers Association) turned him down. He sued under the Americans with Disabilities Act. Great golfers like Arnold Palmer and jack Nicklaus defended the ban because they claimed that fatigue is part of the game. The case went up to the Supreme Court. The court had the job of determining the essential nature of golf. The court ruled 7-2 in favor of Martin. The court reasoned that the use of the cart was not at all inconsistent with the fundamental character of the game. They determined that the key element of the game was “shot making”.

And now we, the reverse mortgage industry must determine just what is ethical behavior for those who control the destiny of this program. For purposes of this discussion we shall consider FHA and HUD as one entity. We have now heard countless times in published speeches and at conference that there is support in Washington for this program. I believe that every time these words are uttered, the speaker believes these words. There is no intent to deceive. But they are just words. Words without feeling; words without consequence; words just plain ordinary words.

Tell the woman who can no longer obtain a reverse mortgage because the program benefit cuts prevent her from getting rid of  her conventional mortgage (she never could afford)-that Washington supports the program; Tell the man who desperately needs the reverse mortgage and yet was turned down because underwriting guidelines prefer that the properly executed power of attorney be called into question by an artificial standard-that Washington supports the program; Tell the war hero who gave his all for his country that in his time of monetary need, his appraisal came in low because the appraisal management company chose an inexperienced appraiser-that Washington supports the program;  Tell the grandmother who has fallen on hard times, that Congress won’t provide the needed subsidy-that Washington supports the program.
Well these words are also having an effect on the industry. It seems to me that if you say something often enough, even if it is not true, folks will start believing it. And the industry is believing that Washington supports the program without a modicum of analysis. Let’s provide some here-from an ethical perspective.
Taking the message from the Casey Martin story, we must find the essence of the program. If it can be said that the essence per section 1715-20a of the National Housing Act is to get a sufficient amount of  money into the hands of our elders, then anything that undermines this would have to be labeled unethical. But there is always another side. And that side must also be considered. There is another argument that posits that one must look at the utilitarian and cost benefits (Welfare)aspect of the program.  If the only way that the program can be maintained and continued is by reducing the benefits, then this approach would  still bring happiness to a greater number of people and is therefore ethical conduct.
Since the new counseling protocol is coming soon, let’s briefly examine that. A 61 year old can go out and get any kind of loan he/she can qualify for. No questions asked. Now when that same individual turns 62 a year later, they are deemed to be lacking mental acuity and any financial acumen. All one wants is money. Yet their life is an open book. The discussion is so wide reaching (the new protocol is 100 pages) that seniors may forego the program because of the intrusive nature of the counseling. If freedom of choice means anything, it is the freedom to do what ever one wishes as long as it does not harm anyone else.  Accordingly, this libertarian viewpoint (Freedom) suggests that counseling should be optional and done only if one wants to partake. The essence of counseling is to insure that the reverse mortgage program meets the needs of the borrower. Yet if too many are turned off and consequently turn away from the program, then the assumed essence is faulty and must be reconsidered.  Additionally, if follow ups are carefully done and it is determined that those that had the counseling fared better than those who did not have the counseling then these numbers have meaning as long as the aggregate number of borrowers continued to increase. On the other hand, if too many borrowers are harmed by miscreants who prey on the elderly, then  mandatory counseling for all could reduce the societal risk.
Instead of piling on rule after rule, Washington (and the states) need to consider what they want the end result to be. I will end with the story of the wise old man and the smart –aleck kid who wanted to make a fool of the wise old man. Here is what the kid wanted to do. He, the kid captured a bird in the forest and he wanted to go up to the old man and say, “What have I got in my hand”? And the old man would reply, “You have a bird in your hand”. “Is it alive or dead”, the kid would say. The old man knew that if he said, “dead” The kid would let the bird fly away. On the other hand if  the old man said “alive”, the kid would kill it and say, “it is dead”.

And so the kid actually went up to the old man and said, “What’s in my hand old man?” and the old man replied, It’s a bird.” Is it alive or dead old man?” And the old man replied, “The bird is in your hands, you have the power.”
And like the smart aleck kid, Washington is holding something very precious in its hands.   Washington has the power……………………..


Leave a Comment


  1. Its about time that someone finally speaks up about Washington’s role in RMs. I believe that what is going on in this administration will lead to the ultimate failure of the program if left unchallenged. As housing prices, the real crux of the program, continues to spiral downward, and the principal limit is once again cut, fewer and fewer seniors will qualify. Washington needs to rethink what an RM is, and how an RM actually helps to fulfill FHA’s original mandate to stabilize neighborhoods. Instead of discouraging seniors from seeking RMs, Washington needs to assist seniors in every way possible. Counseling should be confined to RM issues and not be intrusive, complicated or overly daunting for the senior. It should give the senior the facts and answer the senior’s questions. The assumption that age brings on financial stupidity or financial senility is simply not a fact (as Washington seems to think). If anything, the only place this seems to be true is in Washington itself and is not a consequence of age, only arrogance.

  2. I wish the talking heads would change places with us in the field for about 6 months, and then see what they think of all the new regulations they have enacted.
    I would not be against the FIT or the BCU as long as both are optional and not a requirement. With the questions being asked it is beginning to sound more and more like they DO need to credit and income qualify. For the most part, my borrowers are fully capable of understanding the program and making a thoughtful decision. If they need help they call upon their family or finacial advisors.
    If after 6 months the talking heads still think they made the right decisions I’d like them to come back for another 6 months starting April 1,2011 and see if they can make a living working at this job/mission.
    It is time they truly did put the senior first.

  3. While I support your opinion there is another side to the issue.

    When the principal customer of reverse mortgages is those in need, there is concern that perhaps seniors are desperately reaching out for a product that will not serve their needs. On one hand, federal authorities are correctly treating originators as persons who have a vested interest in the outcome of the originations, while on the other hand state authorities want originators to act as if they were fiduciaries. How can the same person be both on the same transaction?

    While I think FIT is a poorly designed tool, the concept is well warranted; however, this tool is neither fish nor fowl, or for that matter beef or pork. Its defenders avoid the specifics to focus on their stated (some may say self-righteous) goals. They generally have a vested interest in its defense.

    NRMLA is the voice of lenders. Originators need their voices heard as well. I strongly believe that HUD felt as if it needed to do something and could not get their act together in time thus compromising in selecting the NCOA product. Unfortunately not only is the strategy and product poor but worse so is its date of implementation.

    HUD can and must do better. Maybe it is time HUD directly sought out the opinions and advice of those of us who are on the front lines dealing directly with the seniors both before and after counseling — originators.

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