Reverse Mortgage Loan Blog

A reverse mortgage lender has met one of its growth benchmarks by creating 100 jobs in just four months, under a deal with the state for $3.5 million in tax benefits.

But even as Melville, N.Y.-based Vertical Lend Inc. continues its growth in Troy and plans to add 60 jobs in January, the company grapples with allegations of deceptive business practices and use of unlicensed loan brokers in Massachusetts.

Vertical Lend, licensed to operate in 33 states and in the process of changing its name to World Alliance Financial, obtained $3.5 million in tax incentives in April from the Michigan Economic Growth Authority to locate a national office in Troy and create hundreds of jobs.

Last week, the company announced it had created 100 jobs since opening its Troy office in June. That qualifies the company for a $50,000 training grant through the Oakland County Department of Economic Development and Community Affairs, department Deputy Director Maureen Donohue Krauss said.

But just two weeks before winning the local and state assistance for its move to Michigan, Vertical Lend received an order from the Massachusetts Division of Banks to cease its lending activity in that state, based on results of a January audit. A hearing is pending on the company’s Massachusetts license.

Company President and CEO David Peskin said the Troy operation has been using the World Alliance Financial name, and all branches and offices will convert to the new name by Dec. 1.

He also said the Troy location will become a “national office,” like the company’s Long Island, N.Y., headquarters. The company has already begun interviewing for 60 more hires expected to take place in January.

Reverse mortgage lending, available for home owners 62 and older, involves borrowing against existing equity in a home either one time or in payments, which do not have to be repaid until the borrower moves, sells the home or dies. After death, the estate must settle the debt with the lender as a lien holder on the property.

“It’s a prime market to grow,” Peskin said. “You’ve got an estimated 20 million people (in the United States) eligible for reverse mortgage lending, and the basic product is something the customers are really only beginning to hear about.

“And starting next year, 10,000 people every day will be turning 62 and joining the eligible ranks. Since a lot of companies are getting into the field right now, it’s becoming competitive, and that means these customers are going to have a lot of choices and plans with flexibility.”

The Massachusetts Division of Banks issued a temporary cease-and-desist order against Peskin’s company April 3, and that order remains in effect this month, said Kim Haberlin, communications director for the Massachusetts Office of Consumer Affairs.

The Division of Banks alleges that Vertical Lend collected fees totaling $23,541 from loan borrowers who never received forms and disclosures about those payments.

Peskin could not be reached for comment about the practices there, but the company issued a written statement on his behalf: “The incident was an isolated event that resulted from the actions of one individual who was immediately terminated. Not one of our customers was defrauded as a result of this individual’s actions, and we look forward to resolving the issue as soon as possible.”

World Alliance Financial, purchased by New York-based KBC Financial Products in August as a subsidiary company, expects to have $100 million in revenue nationwide in 2008, Peskin said.

Rob Wyatt, senior vice president of the Florida-based Reverse Mortgage Division of Fifth Third Bank, said Fifth Third is entering the reverse mortgage market at a “more controlled growth rate.” The Reverse Mortgage Division was part of First National Bank in Florida until Fifth Third Bank acquired it in 2005.

“In every market, like Michigan, we’re getting into it at the level the market dictates,” he said. “But something like 80 percent of the lenders in this business were not in this business at all two or three years ago, so it really is starting to catch on.”

Wyatt estimates that the number of reverse mortgage applications for Fifth Third companywide is roughly doubling every year.

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