Question

9. Ethical Challenge The economic environment has changed in the past decade due to stock market losses, rising health care costs, and declining property values. As a result, many seniors were forced to look for new ways to generate income after their working careers ended. One of the primary beneficiaries of this shift was firms marketing reverse mortgages. Reverse mortgages allow older homeowners to tap into the equity of their home and receive payments against its value. Typically, when the homeowners die, their heirs must repay the loan, including interest and fees. For the past two decades, the vast majority of reverse mortgages have been offered under the federally insured Home Equity Conversion Mortgages program, which applies to people aged 62 and older.53 Market factors, including the rising number of seniors in the U.S., have led to an increase in advertisements promoting the benefits of these programs. The loans have become more attractive to lenders as traditional real estate sales have struggled in the years since the collapse of the housing market in 2007. Like many other industries, the reverse mortgage business contains two sides of an ethical dilemma. On one side are those marketers who are increasing profits by helping seniors access the equity in their home; on the other are those who are potentially taking advantage of desperate seniors who may not fully understand what a reverse mortgage is. Please use the ethical decision-making framework to answer the following questions: (a) Which parties are impacted by reverse mortgages marketing strategies? (b) If you are a bank hoping to increase profits, would you try to expand your marketing of reverse mortgages to seniors? (c) If you are a marketing manager at a bank that has made the strategic decision to grow its reverse mortgage business, how would you go about promoting the product?

Answer 1

About reverse mortgage

A reverse mortgage is a loan sanctioned only for senior citizens of the country against their residential property.

1. Which parties are impacted by reverse mortgages marketing strategies?

Parties involved in Reverse Mortgage:

1. The Senior Citizen
2. The senior citizen legal heir
3. Bank

Parties impacted by reverse mortgage:

1. The Senior Citizen
2. The senior Citizen legal heir

Because, the senior citizen had to pay the loan amount along with interest, in case of the death of the senior citizen his / her legal heir has to pay the loan amount along with interest.

2. If you are a bank hoping to increase profits, would you try to expand your marketing of reverse mortgages to seniors?

There are two options to increase profit:

Options	Profit	Ethical / Unethical
Increase the market size and customers so that they may obtain interest.	Low profit	Ethical
Target reverse mortgage especially to senior citizens who could not repay the loan borrowed. This would help in obtaining the property and reselling at a higher rate. Because mortgage loan will never be greater than the value of the property.	High profit	Unethical

Therefore, I would try to expand my market because I feel that to be an ethical practice to fetch a considerable profit.

3. If you are a marketing manager at a bank that has made the strategic decision to grow its reverse mortgage business, how would you go about promoting the product?

When comes to reverse mortgage, the borrower is charged a fee of 0.5% of the property as annual fees i.e. if the property cost $100,000 then annual fees is $500. Further FHA one time fees of 2% are levied i.e. $2000.

So, as a marketing manager at a bank, I would try to reduce the annual fees and FHA fees as much as possible. This would attract more customers due to the lesser interest rate. Further, I would try to provide a loan amount greater than what other banks provide, at the same time I make sure that it does not exceed the property value.