Comptroller of the Currency John Dugan warned Monday of the risks of reverse mortgages, which he compared to the dangers of subprime mortgages.

At a speech before an American Bankers Association conference in Orlando, Dugan said the risks of reverse mortgages call for increased regulation.

"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. "I believe that now is the time to get out in front of this issue, before real problems develop, so that reverse mortgage providers make these loans in a way that is prudent for both lenders and borrowers."

Because reverse mortgages are attractive to elderly borrowers, they are prone to coercive sales, misleading marketing claims and substantial fees overlooked by the borrower, Dugan said.

Reverse mortgages are subject to Truth-in-Lending Act and other consumer credit laws, but not all protections in the truth-in-lending law apply to reverse mortgages. In particular, the required escrow for taxes and insurance for higher-priced mortgages does not apply to reverse mortgages. Dugan said that should change.

"We can debate the merits — and need for — escrows in connection with reverse mortgages, but my starting point is that they seem to make good sense from both the consumer's and the lender's perspective because of the significant home-loss risk that flows from nonpayment of taxes and insurance," Dugan said. "It would be a major step forward for" the Department of Housing and Urban Development "to issue guidelines or requirements addressing the escrow issue for" home equity conversion mortgages, "and I would like to begin a dialogue with them on the issue."

The comptroller also called for better counseling for the mortgages and limiting the amount of credit available to be drawn down.

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