The reverse mortgage industry has exploded over the last decade, growing to 110,000 loans and an estimated 2,700 lenders in 2009. The only way that kind of growth can transpire over such a short time period is with a massive promotional effort, especially when the product in question was considered relatively obscure only last year. Sure enough, reverse mortgage advertisements have permeated the media, and infomercials have flooded late-night TV.

Websites aimed at turning unemployed professionals into successful sellers of reverse mortgages have proliferated, with some using language typically found in “get-rich-quick schemes.” Promises one website, “You really are at the right place at the right time. Not to sound too corny or salesy but this truly is a “GOLDEN OPPORTUNITY” since so few loan officers are working with this niche or have any clue about the secrets to successfully marketing to seniors.” Another advises, “You must never, ever stop marketing. When you take a step back and think about … we really aren’t originators, are we? In reality, we are marketers of our services, and no marketing equals no business.” For anyone on the other end of this transaction, that should set off alarm bells.

For research purposes only, I have spent the last few days watching such commercials and reviewing advertisements. With only a few exceptions, I have been appalled by their inaccuracy. [For the record, I’m not trying to vilify reverse mortgage lenders and loan officers merely for the sake of doing so. I have no truck with those who present the product accurately and market it towards those whose financial circumstances would support obtaining one.]

Unfortunately, the most egregious aspect of reverse mortgage marketing is that lenders present it as a one-size-fits all product appropriate for all retirees. The advertisements often feature happy, older couples enjoying nice meals and luxurious vacations, with the implicit message that “this could be you.” In reality, the product was originally conceived to help those whose financial situations were precarious- hardly a “niche” that would be inclined to use the proceeds for expensive dinners.

For those whose financial situations are already somewhat robust, and simply want a little “play money,” consider that the lending terms of reverse mortgages are somewhat extortionate. This is my second grievance with reverse mortgage commercials: that they gloss over the fees. In reality, upfront fees are substantial, and interest rates are insidiously high, partially as a result of the “yield-spread premiums” which are paid to loan officers for doing little more than standing between you and the lender. They are able to get away with charging these fees because most borrowers don’t know about them and/or don’t understand the way reverse mortgages work. As a result of these costs, you receive only 60% of the value of your home when the loan is obtained, and in exchange, you (or your heirs) forfeit the majority of the proceeds reaped from a sale in the future. As morbid as this sounds, this is fine for those who intend/wish to die in their homes. For those that plan to downsize or move into assisted living facilities in their twilight years, a reverse  mortgage could rob you of the funds to do so. Doesn’t sound like a very reasonable trade, does it?

My final point of contention is that reverse mortgage ads ignore the risks, to the point of being misleading. Many ads draw attention to the fact that loans are government insured. While this is true, the insurance is paid by you, but all of the potential benefits inure to the lender. In other words, the insurance is necessary to protect the lender in case you default. Don’t kid yourself into thinking that it benefits you. It’s true that if you stay current on property taxes and maintenance, your loan can’t be foreclosed upon. For those who can’t stay current and/or sell their home for another reason, they may not be left with much equity (if any) after a sale.

Let this be a lesson for those of you eligible to take out a reverse mortgage. Again, that’s not to say that the product isn’t ultimately a reasonable choice for you. Just make sure you take these ads at face value. The fact that reverse mortgages are extremely profitable for lenders means you need to be vigilant.