Marty Bell, Director of Communications for the National Reverse Mortgage Lenders Association, recently authored an articulate and impassioned response to a Consumer Reports article that denigrated reverse mortgages. His manifesto, which was published on Reverse Mortgage Daily, was championed by dozens of readers, who heaped praise on Mr. Bell for bringing the truth to light.

I, on the other hand, was less than moved. It’s clear from Mr. Bell’s response that the original Consumer Reports article did not adhere to the highest of journalistic standards. The report was biased and sometimes erroneous, but I found its criticisms to be eminently reasonable. Moreover, I thought Mr. Bell’s response hewed to an equally strong bias, and perhaps he is equally guilty of committing logical fallacies. Alas, this is not surprising given his position as chief megaphone for the reverse mortgage lending  lobbying group. In a nutshell, he represents the producers, and consumer reports represents the consumer.

I would like to offer a rejoinder to Mr. Bell’s response, not necessarily because I believe Consumer Reports was right, but because I don’t believe they were wrong.

1) Based on the data I have seen, reverse mortgage lending is projected to rise by 50% in 2009. In my book, that qualifies as an “explosion.”

2) “The fees and interest charges, which are misunderstood and miscalculated in Consumer Reports, are comparable to any mortgage product,” says Mr. Bell. I would agree with Consumer Reports that the fees associated with reverse mortgages are clearly exorbitant. Regardless of what they are being used to pay for (FHA insurance, in this case) and whether these costs are reasonable/valid, the costs are nonetheless significant, and Mr. Bell does a disservice by not acknowledging this. Interest charges, meanwhile, while comparable to traditional mortgages, seem slightly more insidious, since they are merely subtracted from one’s equity, rather than paid outright, and thus can seem less than they actually are.

3)  Contrary to Mr. Berll’s assertion, there are still reports of rampant fraud, abuse, cross-selling, contrary to what Mr. Bell insists. It’s not fair to blame reverse mortgages for the fraud that surrounds it, since every industry is plagued by “bad apples.” Still, it should be acknowledged that questionable practices in reverse mortgage lending are especially prevalent, perhaps because the product is comparatively complicated. It doesn’t help that the number of reverse mortgage lenders has surged, attracting brokers that were formally involved with selling sub-prime mortgages. His response, that “anyone who sells the product inappropriately is taking perhaps the hugest risk of all—ruining their professional reputation,” is quite naive.

4) Legislators are rightfully concerned about such fraud and cross-selling. For the record, John Dugan, Comptroller of the Currency, said “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.” Does that sound like a “fan of the product?” Dugan’s comments were made not in the context of theory, but against the backdrop of reality. Human nature being what it is, the government has a responsibility to protect consumers both from themselves and from unscrupulous lenders.

5) If housing prices remain low or trend lower, defaults reverse mortgages could certainly become more common. Pessimistic projections or not, this is still a reasonable concern, since it is ultimately taxpayers which will be on the hook.

6) The problem, as Mr. Bell alludes to but does not acknowledge, is a lack of accountability. The FHA insurance system is akin to securitization system which encompasses traditional mortgage lending, in that loan originators bear little responsibility for the consequences of their lending. If the loan goes bad, it is the federal government and private investors that will ultimately be responsible. This doesn’t provide much of an incentive for careful vetting of potential borrowers.

Personally, I think reverse mortgages can be beneficial in the right circumstances. Mr. Bell would have us believe that they are beneficial in almost all circumstances. He doesn’t acknowledge that in return for being allowed to stay in one’s home, a reverse mortgage borrower gradually loses the majority of his equity.

Mr. Bell’s analysis is predicated on the assumption that staying in one’s home at all costs is the best option. A reasonable alternative would be to simply sell the home and move into a smaller, more affordable unit, and/or switch to renting. Of course, for those that want to stay in their homes, reverse mortgage lending remains the best/only option, but perhaps this is an irrational choice.

In short, I think Consumer Reports does deserve some credit for shining the spotlight on the this small-but-growing corner of mortgage lending. Given the “great retirement” that is looming, demand for reverse mortgage will only continue to increase, and it’s crucial that organizations such as Consumer Reports exist to prevent unchecked growth.