Federal Regulator Urges Caution When Considering Reverse Mortgages

The Washington Post reports:

• If you watch TV during insomniac hours, you've probably caught some of the commercials for reverse mortgages. [...] But there's much more to know about these highly complicated and often very expensive forms of credit. And [last week], one of the government's banking regulators, Comptroller of the Currency, John C. Dugan, warned that tougher oversight may be necessary. "While reverse mortgages can provide real benefits, they also have some of the same characteristics as the riskiest types of subprime mortgages -- and that should set off alarm bells," Dugan said in a speech to a banking group.

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• Under the right circumstances, a reverse mortgage can be a fine way for the elderly to remain in the homes and neighborhoods they love, while using their equity to make needed repairs, keep up with rising property taxes or to supplement their monthly cash flow. [...] But consider these elements of risk: Elderly homeowners, (a group that frequently has been targeted by financial scammers), large pots of home equity, confusing financial/legal documents, big up-front fees, and the potential for profit. There is plenty of opportunity for things to go wrong.

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