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Published: Sunday, 7/1/2012

Oversight, clearer terms urged for reverse mortgages


WASHINGTON -- As some older Americans try to improve their finances by tapping home equity through reverse mortgages, many are at risk of ending up in a worse situation because of confusion over the complex terms of the loans, according to a new government report.

There is a growing tendency for seniors to obtain the money at a younger age and in a lump sum instead of annual installments designed to spread the dollars through their retirement -- problems that could accelerate as the baby boom generation goes gray, according to the report released Thursday by the Consumer Financial Protection Bureau.

With about 10 percent of reverse mortgages in default because the homeowners failed to keep up with required property tax and insurance payments, the bureau said it was worried about the increased use of the product over the last decade and was looking into new regulations. In addition, the complexity of reverse mortgages makes some senior citizens prime targets for scammers, the report said.

"There may be circumstances where the reverse mortgage is appropriate … but the seniors I've talked to really are a bit confused about what it is all about," said Hubert H. "Skip" Humphrey III, head of the bureau's Office of Older Americans.

"They're told there's money out there that they can get, but there isn't always a description of the cost associated with the product. And the interest rates and other parts of this product are often confusing," Mr. Humphrey said.

The consumer bureau is considering requiring better disclosure of reverse mortgage terms and stricter oversight, including limits on misleading advertising.

Consumers Union has been warning that reverse mortgages are ripe for abuse and that people should use "significant caution" in exploring the option.

This week, the group urged tougher federal oversight of the loans and published tips for consumers considering reverse mortgages.

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