Watch Out for Reverse Mortgages

In earlier posts, I've had some nice things to say about reverse mortgages as a possible solution for cash-strapped seniors. But now some industry analysts, including a U.S. bank regulator, John Dugan, believe that reverse mortgages could be the next subprime mortgage product. He says that while reverse mortgages can be beneficial, they also share some of the characteristics of the riskiest types of subprime mortgages.
Most reverse mortgages are insured by the Federal Housing Administration and pose limited credit risk, but a different class of reverse mortgages is becoming popular--“proprietary” products--which offer less consumer protection.
To protect consumers, regulators are crafting guidelines and Dugan is recommending that regulators be more vigilant about misleading marketing. They are cracking down on lenders who try to bundle a reverse mortgage with other financial products, such as an annuity or life insurance product. Meanwhile....be vigilant.