While not knowing many of the details behind the recent surge in reverse mortgages (I recall a year or two ago it was looked upon as about the only bright spot in consumer lending for the big banks) you’d have to think that with rising health care costs, the lack of savings, and poor investment returns on what savings they might have, seniors are helping to boost banks’ bottom lines by taking out more and more of these loans and paying more and more fees. Reuters reports on guidance that was offered yesterday on these products.

The Federal Reserve and other top regulators said on Monday reverse mortgages pose “compliance and reputation risks” for lenders, and offered guidance to financial firms on how to avoid such pitfalls.

The Fed said reverse mortgages, which enable borrowers to get a monthly income stream by surrendering a portion of the equity in their homes, are likely to become increasingly popular given an expected rise in the elderly population.

The guidance puts no limits on fees that can be charged for reverse mortgages.

“Reverse mortgages present substantial risks both to institutions and to consumers, and, as with any type of loan that is secured by a consumer’s home, it is crucial that consumers understand the terms of the product and the nature of their obligations,” the regulators said in a statement.

“Lenders must institute controls to protect consumers and to minimize the compliance and reputation risks for the institutions themselves,” they said.

Oh Geez. That sounds a lot like the “guidance” they were dispensing for home equity loans back around 2005. Seniors would be well advised to read the fine print closely before grabbing that money because it sounds like the banks will get at least their fair share.