The Department of Housing and Urban Development said it would bar lenders who knowingly book reverse mortgages through outside financial planners that charge improper fees.

Lenders will be banned from all of the department's FHA programs and could face criminal or civil charges, said HUD Secretary Andrew Cuomo.

"Several hundred" senior citizens have been affected by the alleged scam, in which finance companies charge several thousand dollars to steer borrowers to lenders that make reverse mortgages, Mr. Cuomo said.

So far, six finance companies in California and Nevada have been identified by HUD.

As the investigation continues, lenders and outside mortgage brokers will be examined for potential connections to the scheme, Mr. Cuomo said.

The investigation comes at a time when reverse mortgages-which pay borrowers based on the equity in their homes-have been trying to grow from a fledgling business to a mainstream lending program.

Mr. Cuomo, whose agency oversees the biggest reverse mortgage program, said the alleged wrongdoing by the finance companies, while unfortunate, would not deter HUD from continuing the program.

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