In late-night commercials, a pitchman such as Robert Wagner (who starred in the early-’80s series “Hart to Hart”) explains that reverse mortgages are a way for people 62 or older to achieve financial security by tapping their home equity. The homeowners never have to make a payment (indeed, they collect money) and they can continue to live in and own their homes. That’s all true. But there’s much more to know about these highly complicated and often expensive forms of credit. Last week, 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 to a banking group. According the OCC, 90 percent of all reverse mortgages are insured by the Federal Housing Administration. Dugan said closer federal oversight may be necessary to protect the FHA and homeowners.

Basically, a reverse mortgage allows a person who owns a paid-off home (or who has only a small balance remaining) to set up a line of credit against his or her home equity. The homeowner can receive a big sum of money upfront, get monthly checks and/or establish a line of credit. Typically, after the owner dies or moves, the house is sold to pay off the debt and heirs receive any money that’s left.

A reverse mortgage can be a fine way for the elderly to remain in the homes and neighborhoods they love. But, they carry big fees, and so for the first few years are quite expensive financial tools.

But consider these elements of risk: elderly homeowners, large pots of home equity, confusing documents, big fees and the potential for profit.

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MetLife Bank N.A., a unit of MetLife Inc., has completed its acquisition of EverBank Reverse Mortgage LLC of Bloomfield, N.J., from its parent, EverBank Financial Corp. EverBank Reverse Mortgage will be a wholly owned subsidiary of MetLife Bank. Terms of the agreement, which was announced on April 3, were not disclosed.

“With this acquisition, MetLife Bank now has a greatly expanded team of trained reverse mortgage specialists as well as industry-leading technology to support this business,” says Donna DeMaio, president of MetLife Bank. “This transaction enhances MetLife’s capabilities to help consumers meet their needs for a secure retirement.”

Currently, reverse mortgages will continue to be offered under both the MetLife Bank and EverBank Reverse Mortgage brands.

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Low risks, a federal guarantee and an aging population make for rapid growth

Several banks in New Jersey are reporting a surge in business from reverse mortgages, a form of lending where individuals above the age of 62 can borrow money secured by their home equity, make no monthly repayments and then pay off the loan when the home is sold.

The number of reverse-mortgage deals in New Jersey has grown from 619 in 2003 to 3,881 as of Sept. 30, 2007, as tracked by the federal Department of Housing and Urban Development.

Banks are happy to make reverse-mortgage loans because they involve almost no downside risk, unlike conventional home loans where borrowers may default on their repayments, says Dennis Kane, vice president and marketing director at Amboy Bank in Old Bridge. Federal rules require reverse-mortgage properties to be single-family homes that are owner-occupied.

A typical loan does not exceed 50 percent of the appraised value of the borrower’s home, and is guaranteed by the Federal Housing Administration under its Home Equity Conversion Mortgages program, explains Kane. A borrower can get a lump sum or monthly payments for a period determined by his or her life expectancy, he adds.

Kane says Amboy Bank began offering reverse mortgages a couple of years ago, and has so far finalized about 200 such deals totaling $20 million. He says he expects reverse-mortgage lending at his bank to grow to about $30 million in the current year.

James Flynn, senior vice president of residential lending at OceanFirst Bank in South River, claims his bank is the largest reverse-mortgage originator in the state. It began offering such loans in 2004, when it closed 57 loans worth $10.7 million, and last year tallied 212 loans totaling $56.2 million, he says.

“The [reverse-mortgage] product is consistent with our bank’s community image and our product lines,” says Flynn. The bank has all its 21 branches in Ocean, Monmouth and Middlesex counties, which have a sizable and growing community of senior citizens who could use reverse mortgages to supplement their monthly incomes, he adds.

Reverse mortgages are gaining in popularity nationwide, too, and the number of such loans insured by the Federal Housing Administration increased 26.5 percent to more than 100,000 loans between 2006 and 2007, according to the National Reverse Mortgage Lenders Association in Washington, D.C., a group of 650 lenders. Darryl Hicks, the association’s vice president of communications, says its members represent 95 percent of all reverse-mortgage deals in the country.

One of the newest entrants in this market is Magyar Bank in New Brunswick, which started offering reverse-mortgage financing three months ago, says John Reissner, its vice president and marketing director.

Magyar Bank has finalized “a handful of reverse-mortgage deals” so far and plans to grow the service along with overall residential home mortgages this year, Reissner says. “We recognize it is becoming more popular as the population continues to age,” he adds.

One reason for the boom in reverse mortgages is “more awareness of the program and greater acceptance [by borrowers],” says Hicks. He says lenders have been battling “misconceptions that a reverse mortgage is where the bank gives you a monthly check and takes away your home.”

The National Reverse Mortgage Lenders Association has been telling borrowers that “they always retain title to their homes, and the bank does not control your home,” says Hicks.

Another reason for the expansion in the reverse-mortgage business is the growing number of banks that have begun offering the loans, he adds.

In the past year alone, 786 new members signed up with the National Association of Reverse Mortgage Lenders, according to Flynn. The rush of new entrants to this market has made competition fiercer and can cause problems, Flynn says.

“[New entrants] may come from some other industry and start soliciting reverse-mortgage business, put together documents that are not totally factual,” says Flynn. “It could put us lenders in a position where we need strong audit trails to track what they [mortgage brokers] are doing.”

Hicks says his association seeks to prevent unscrupulous operators by posting on its Web site a list of lenders it has approved. “We have a code of ethics we enforce, so we encourage people to work with the lenders associated with us,” he says.

With so much competition, institutions like Amboy Bank have added new features to their reverse-lending products to distinguish themselves from rivals. Kane says Amboy charges lower upfront fees than other federally guaranteed reverse-mortgage products in the market, and waives the mortgage insurance requirement.

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First Midwest Bancorp Inc., one of the Chicago area’s biggest locally headquartered banks, has restructured its mortgage practice to reflect a bigger emphasis on reverse mortgages instead of mortgage originations.

“We have a little older clientele, and from time to time, as part of the strategic planning of the bank, we look at the performance and market opportunities of all different areas,” Cynthia Lance, executive vice president and corporate secretary, said last week.

“We realized we had a stronger need and impact in the reverse mortgage business, and we restructured that department for its emphasis to be primarily reverse mortgages and not in the origination area.”

Reverse-mortgage products, which give older homeowners an opportunity to tap the equity in their homes, are a more efficient use of the bank’s resources than originations, Lance said. The Itasca-based bank won’t be originating mortgages internally, she said.

So what happens if a customer walks into one of First Midwest’s 103 offices looking for a mortgage, and the $8 billion full-service bank is no longer originating them?

“We’ll work with you to find a good mortgage lender at a good rate for you,” Lance said.

Though reverse mortgages represent less than 1 percent of the $10 trillion U.S. home-loan market, the number of federally backed reverse mortgages rose 41 percent in the 12 months ended Sept. 30, according to the Department of Housing and Urban Development.

First Midwest’s restructuring has created uncertainty for a small number of its 2,100 workers.

“It resulted in shifting some personnel around and resulted in the elimination of a couple of positions,” she said. “We’re also looking to redeploy folks.”

They will remain on the payroll until at least Jan. 15.

The number of workers on the bubble are fewer than 20 and could be as little as 10, Lance said.

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