Cornerstone Financing, a venture co-founded by former Reverse Mortgage Funding (RMF) CEO Craig Corn, has secured $285 million in financing through global investment firms Aquiline Capital Partners LP and Nomura.
The funding will go to support the company’s specialty home equity-tapping product known as the Cornerstone Home Equity Insurance/Investment Funding Solutions (CHEIFS). The product operates similarly to a shared equity investment. It allows homeowners to sell a portion of their home equity for cash to specifically fund “insurance, annuities, long-term care, and other financial and life planning options,” the company said.
“Partnering with these prestigious institutions affirms our commitment to providing advisors with innovative home equity solutions,” said Daniel Anderson, who co-founded Cornerstone Financing alongside Corn.
CHEIFS is currently available in four states: Arizona, California, Florida and Pennsylvania. Supported by the new funding round, the company has ambitions for a national expansion and is seeking new distribution partnerships.
The company describes the product’s purpose as aiming to “utilize previously untapped home equity to enable superior estate, insurance, and investment planning through trusted advisors.”
Timothy Gravely, partner and head of credit for Aquiline, added that the firm got involved due to the unrealized potential for using home equity to address retirement shortfalls.
“We are proud to support Cornerstone in the expansion of CHEIFS,” Gravely said. “This product addresses a critical gap we observed through our participation in the insurance market, and we are excited to back the solution.”
Corn is a longtime reverse mortgage industry professional, having served in leadership roles at Financial Freedom and EverBank Reverse Mortgage, and as vice president for MetLife’s reverse mortgage division. In 2013, Corn and his partners launched RMF, which became a leading reverse mortgage lender.
According to Home Equity Conversion Mortgage (HECM) endorsement data compiled by Reverse Market Insight (RMI) in early November 2022 — just prior to the halting of originations and its subsequent bankruptcy — RMF was the fifth-largest HECM lender in the country, with 4,804 endorsements over the 12-month period that ended Oct. 31 of that year.
Following the collapse of RMF and the assumption of its servicing portfolio by Ginnie Mae, Corn and Anderson went on to launch Cornerstone Financing in May 2023.
What appears to be here are not one transaction but rather two. The first transaction decreases equity without any resulting debt even though the transaction will, no doubt, produce a recorded lien. I would imagine that in California, one will be required to have a real estate lien to faciliatate it. I am reasonably sure that most other states will require the same, especially if it is technically a real estate option like most of these products are.
It would seem that the second transaction is the acquisition of an insurance product that would at least require an insurance license. Depending on the type of insurance, a FINRA related securities license could be required as well.
So could a person who is qualified to sell the insurance products also originate HECMs? HECM law as codified in the USC (United States Code of laws) is found under section 12 USC 1715z-20(n)(1)(A) states the following:
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“(n)Requirements on mortgage originators
(1)In general
The mortgagee and any other party that participates in the origination of a mortgage to be insured under this section shall—
(A)not participate in, be associated with, or employ any party that participates in or is associated with any other financial or insurance activity;
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HUD has failed to enforce this portion of section (n); however, it is the law and is the principal under which HUD decided to require complicance as cited in section (n)(1)(B) which states the following:
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“(B)demonstrate to the Secretary that the mortgagee or other party maintains, or will maintain, firewalls and other safeguards designed to ensure that—
(i)individuals participating in the origination of the mortgage shall have no involvement with, or incentive to provide the mortgagor with, any other financial or insurance product; and
(ii)the mortgagor shall not be required, directly or indirectly, as a condition of obtaining a mortgage under this section, to purchase any other financial or insurance product.”
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As to California, it has an insurance law governing the sale of insurance products to those with reverse mortgages. Since this law has significant but limited application, I strongly urge those originating any type of reverse mortgage in California to read California Code of Insurance 785.1, even though it is directed at insurance producers.
For purposes of disclosure, I am not an attorney so for legal advice, please seek the advice of an attorney(s) competent in such matters.