Much of the criticism heaped on reverse mortgages is focused on the idea that proceeds tend to be used for inappropriate purposes, such as paying credit card debt, vacations, and other “luxuries.” But what if proceeds were used for “legitimate” needs, such as long-term care and other age-related necessities. Would there still be reason to object?

This was the topic of a provocative piece I read by Howard Gleckman, Senior Research Associate at the Urban Institute, entitled “Public Reverse Mortgages and Long-Term Care: Can They Work Together?” Gleckman argues that private reverse mortgages are flawed because the are expensive, complex, and give borrowers too much discretion in how proceeds are spent, putting them at risk for future financial peril. The solution, he concludes, is to initiate a public reverse mortgage program, whereby the costs of long-term care would be advanced to the elderly, at low interest rates and with their homes as collateral. Presumably, this program would be inexpensive and transparent, as well as serve an important social function.

Whether you agree with the idea of the government entering the “business” of reverse mortgages, you can’t help but see the rationale behind Gleckman’s analysis. I, myself, have argued that reverse mortgages seem to be inappropriate for a substantial portion of the borrowers that ultimately obtain them, many of whom have better options and/or no real need for the money they provide. It still bothers me that reverse mortgages are inherently expensive, but if the proceeds are used for non-frivolous purposes, my objections would basically fade away.

As for what constitutes a non-frivolous expense, that is open to debate. Gleckman suggests that, “You could use the money to make your home wheelchair accessible, or pay for a special van, or even for adult day care or that home health aide.” He adds that, “You’d have far more flexibility than with regular Medicaid. In return for this upfront cash, your heirs would repay the state with modest interest after you die, usually by selling your house. The state wins by saving the cost of caring for you in a nursing home.” For those that want to remain in their homes for as long as possible, this represents an excellent compromise, regardless of whether the lender is public or private.

In fact, this is arguably why reverse mortgages were initially conceived – not to help baby boomers live affluently even in retirement, but rather to fund the cost of certain unavoidable medical and other expenses that are associated with getting old. As Gleckman bemoans, “At the same time, a troubling number of users are relatively young borrowers who are tapping reverse mortgages to pay off credit cards or fund vacations. The perverse result: They will have even less home equity available when they really need it to pay for long-term care.”