The Seminar Referral Fee and the Annuity at the Signing Table
Marcus originates HECMs for a mid-sized lender. He runs monthly 'retirement strategies' seminars with Priya, a licensed insurance agent. Priya's assistant collects attendee names, and Priya sends the ones over 62 to Marcus. Marcus proposes a written marketing agreement paying Priya's firm $600 for each loan that closes from her referrals, 'as a marketing fee, not a referral fee.' Marcus's radio spot says: 'A reverse mortgage eliminates your mortgage payment forever and creates guaranteed tax-free income for life - no risk, no credit check, and it's a government program.' Last week Priya sat in on a 79-year-old client's signing appointment and told him to take the largest possible lump sum and immediately buy a $95,000 fixed indexed annuity with a 10-year surrender charge, because 'otherwise the bank keeps your equity.' The client's daughter has emailed the compliance department.
1. Evaluate the proposed $600-per-closed-loan arrangement with Priya's firm.
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The label does not control. A HECM is a federally related mortgage loan, so RESPA Section 8 prohibits giving or receiving anything of value for the referral of settlement service business. Paying $600 per closed loan is volume-based compensation tied to referrals - a classic kickback. Calling it a 'marketing fee' does not fix it.
An arrangement can survive scrutiny only if it pays fair market value for bona fide services actually performed, is not conditioned on the number or value of referrals, and is set out in a written agreement reviewed by counsel. Even then, the services must be real and documented (for example, hosting costs for a seminar the lender's own staff presents).
There is also licensing exposure: if Priya or her assistant discusses loan terms, quotes rates, or takes applications, they may be acting as unlicensed mortgage loan originators.
Recommended action: do not sign the agreement as proposed; escalate to compliance and legal; confirm no per-loan payments have already been made; and if the relationship continues, restructure it so no compensation is tied to referrals.
2. Identify the problems with the radio script and explain the standard you are applying.
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Each claim is problematic:
- 'Eliminates your mortgage payment forever' - misleading. There is no required monthly payment, but taxes, hazard insurance, HOA dues, and maintenance remain the borrower's obligation, and failing to pay them can make the loan due and payable.
- 'Guaranteed tax-free income for life' - overstates. Tenure payments continue only while the borrower lives in the home and the loan is not due and payable; they stop if the borrower permanently moves out or defaults. Tax treatment is a question for a tax advisor, not an advertisement.
- 'No risk' and 'no credit check' - false. The HECM includes a financial assessment of credit, income, and property charges, and a LESA may be required.
- 'Government program' - may not imply government endorsement or that the product is government-issued to the consumer.
The standard: advertising must be accurate and not misleading, must clearly identify the lender, and must include required disclosures; state rules may add more. Pull the spot, correct the scripts, retain the review, and confirm the loan officer's own social media follows the same standard.
3. What should happen regarding Priya's advice at the signing appointment? Describe the originator's obligations and immediate steps.
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Stop the combined appointment. A HECM may not be conditioned on the purchase of an annuity or any other financial product, and using the signing table to sell one is coercion at the moment of maximum borrower vulnerability. Steering a 79-year-old into a $95,000 product with a 10-year surrender charge raises suitability and elder financial abuse concerns and is not the originator's judgment to make.
Immediate steps:
- Tell the client in writing that the annuity is entirely optional, is not required to obtain or keep the HECM, and that he may cancel or postpone it.
- Confirm the three-business-day right of rescission on the HECM and that no product purchase happened or was required inside that window.
- Encourage independent advice - a tax advisor, attorney, or HUD-approved counselor - and respond to the daughter's inquiry factually, within privacy limits.
- Document the file: who was present, what was said, what the client elected, and the written notices given.
- Escalate to compliance and follow the firm's elder-financial-abuse policy and any state reporting duty.
Do not accept an application from Priya or continue joint appointments until compliance clears the arrangement.