RISMEDIA, Dec. 17, 2007–Financial Freedom, the Irvine, California-based reverse mortgage lender, denies any wrongdoing in a case charging they used unlawful sales practices targeting seniors by inflating fees and using the proceeds to purchase additional financial products.
The U.S. Senate Special Committee on Aging heard testimony last Wednesday following its heightened concern over lawsuits recently filed against companies offering these types of loans.
In a statement released by Joel A. Schiffman, Senior Vice President/General Counsel of Financial Freedom Senior Funding Corporation (Financial Freedom), the company reported, “Applicable privacy laws preclude us from providing a detailed response to the specific allegations asserted against Financial Freedom by Carol Anthony at the hearing, but we feel compelled to provide some important background.”
According to a spokesperson for Financial Freedom, Carol Anthony is the daughter of a woman who purchased a reverse mortgage from another company that was purchased by Financial Freedom and because of that, Ms. Anthony’s testimony against Financial Freedom was misdirected.
“First, contrary to the allegation made during the hearing, Financial Freedom did not make the loan that was the subject of Ms. Anthony’s testimony,” Mr. Schiffman said. “Second, Financial Freedom fervently denies the allegations that have been made and we are comfortable that Financial Freedom acted properly at all times.
He continued, “For the record, Financial Freedom simply purchased the loan after it had been closed by the original lender, Senior Freedom Corporation Funding and referred to in Ms. Anthony’s testimony as Senior Financial Freedom (which in no way is affiliated with Financial Freedom). Regretfully, the similarity between names has caused unwarranted focus on Financial Freedom.”
In a separate story, a suit filed on behalf of Ernestine Boach against Financial Freedom states that she was allegedly conned into purchasing a reverse mortgage with exceptionally high fees and then sold several insurance and annuity products with the proceeds. The case, Ernestine Boach v. Financial Freedom Senior Funding Corporation was filed in San Diego Superior Court on January 11, 2007 and alleges that the Boach was advised to take out a reverse mortgage from Defendant Financial Freedom Senior Funding Corporation for $171,000 on the home she owned. The proceeds of which were to be used to purchase insurance products, including, a Fidelity and Guaranty deferred annuity with enormous surrender charges for $80,000, and a $44,350 immediate annuity to fund payments on a $250,000 flexible premium life insurance policy (also containing surrender charges).
Boach’s San Diego attorney Ronald A. Marron claims that this is an instance of a pervasive “equity stripping scheme” which involves Financial Freedom’s agents working in tandem with insurance brokers using reverse mortgage proceeds.
Regarding those reports, Financial Freedom issued the following release:
Financial Freedom Senior Funding Corporation received a formal invitation on December 7, 2007 to testify before the Senate Special Committee on Aging on December 12 in Washington DC. Given schedule conflicts, Financial Freedom was unable to attend the hearing in person but submitted the attached testimony in writing. Financial Freedom representatives have volunteered to go the Washington after the first of the year to meet in person with the senators on the committee and theirs staffs, and this idea has been favorably received. We look forward to working with the committee on these important issues.
As the oldest and largest reverse mortgage lender and servicer in the industry, more seniors have chosen Financial Freedom than any other lender for their reverse mortgages.
Financial Freedom has been dedicated to a single mission: enhancing the lives of seniors by providing financial security and independence. We recognize the special needs of seniors and have been instrumental in working with National Reverse Mortgage Lender’s Association (“NRMLA”), the industry’s trade group, and AARP to develop best practices, policies and consumer safeguards to protect seniors and establish the reverse mortgage as a credible financial planning tool.
The specific consumer safeguards Financial Freedom has incorporated into its standard business practices with respect to reverse mortgages include the following:
1. Our Reverse Mortgage Specialists provide each senior borrower with a side by side illustration of three different reverse mortgage products, as well as the benefits and options available, created by Financial Freedom’s innovative, proprietary software program, Reverse Mortgage Analyzer (RMA).
2. We encourage all of the senior borrowers’ advisors, both personal and professional, to meet with our loan representatives to review the needs and options available to that senior.
3. As required by law, we ensure that our senior borrowers are provided counseling from HUD approved, specially trained counselors who are independent of Financial Freedom so that they receive an objective review of the product prior to processing an application or the borrower incurring any costs.
4. Our underwriting center conducts a review of the loan submission, program and product selection.
5. Annuity Disclosure – Financial Freedom recognized there was a void of information regarding reverse mortgages and annuities. In response, we developed a specific annuity disclosure that provides objective information on combining reverse mortgages and annuities. A copy of this consumer friendly, but informative piece has been attached as Appendix “A” to our written testimony. We also include one to two specific annuity disclosures, depending upon the jurisdiction, that are incorporated into our application package and final closing package, which state that Financial Freedom does not require, offer or arrange the purchase of annuities in connection with the reverse mortgages we offer. Both disclosures are signed and dated by the borrower. It is also Financial Freedom’s policy not to permit annuities to be purchased with the initial disbursement of proceeds from the reverse mortgage.
6. After the closing, an independent customer satisfaction survey is mailed to each senior borrower to obtain an opinion and comments on the loan process.
7. Proceeds from the initial disbursement of all reverse mortgages may only be paid (i) to discharge any existing liens on the property, (ii) to pay contractors for any repairs performed as a condition of closing, (iii) to pay the initial mortgage insurance premium (if applicable), (iv) pay fees the lender is authorized to collect, and (v) directly to the borrower or the borrower’s representative.
8. Financial Freedom does not offer, endorse, or recommend the purchase of any other financial or insurance product or service. We make it very clear to all customers that they do not need to purchase any other product or service in order to obtain a reverse mortgage.
9. All Financial Freedom employees are W-2 employees that have no other employment with real estate, financial services, and insurance or securities firms and annually attest in writing that this is the case.
These practices are intended to assure that senior borrowers and their advisors are provided with objective, complete, and honest information to assist them in selecting the right reverse mortgage program and product options. They are also designed to create a clear separation in the senior’s mind between their reverse mortgage transaction and any other product or service they might consider purchasing with proceeds from their reverse mortgage loan. Our goal is to ensure that the correct solution (loan) is matched to the borrower’s needs. As a result, our borrowers are well informed of their options when they take out a reverse mortgage from Financial Freedom and know that they are in control of their financial situation.
Borrowers’ Use of Reverse Mortgage Proceeds
Of course, there are no limitations on how borrowers may choose to spend their reverse mortgage proceeds after the loan funds. Outside of the loan transaction itself, borrowers can use the proceeds they receive from a reverse mortgage as they see fit, whether to pay for the education of grandchildren, fund travel expenditures, purchase financial products or other uses they deem appropriate. A key benefit of a reverse mortgage is that it can give a senior citizen choices that they might otherwise not have, and the lender’s role is not and should not be to dictate to anyone how they can and can not use their own net worth accessed through a reverse mortgage.
Reference to Litigation
The press release to which we are responding was put out by the Law Offices of Ronald A. Marron. Mr. Marron is a plaintiff’s attorney who references that he represents Ernestine Boach in a lawsuit against Financial Freedom. Mr. Marron goes on to discuss details of the case as he sees them. Financial Freedom’s policy is to not discuss publicly the details of any pending litigation except to say that we believe the claims made by Mr. Marron on behalf of Ms. Boach are baseless and without merit, and we plan to continue to vigorously defend ourselves.
To read more on this subject, visit http://rismedia.com/2007-12-12/reverse-mortgage-sales-abuses-targeting-seniors/