Reverse mortgages are increasingly the go-to solution for retirees confronting insufficient nest eggs and paltry income payouts in today’s low-rate environment. Last year, the number of new Home Equity Conversion Mortgages insured by the federal government amounted to 112,000 — more than 14 times the HECMs that were originated in 2001. The 2009 tally is expected to be even higher.money.03

Last week’s news that 2010 Social Security benefits will not be given a cost-of-living adjustment — for the first time since inflation protection was added to the program in 1975 — will likely fuel demand for reverse mortgages. And lenders on the prowl for post-meltdown revenue sources are eager to boost the supply. The Government Accountability Office reports that 1,500 lenders made their first reverse mortgage loan in 2008, more than doubling the number of lenders offering these deals.

When done right, reverse mortgages can be a sound financial tool for retirees. But problems abound, as Donna Rosato laid out in “Beware the reverse-mortgage ripoff.”

Comptrollor of the Currency John Dugan certainly didn’t soft-pedal his concern in a June address to the American Bankers Association. “While reverse mortgages can provide real bene?t,” he said, “they also have some of the same characteristics as the riskiest types of subprime reverse calculator —and that should set off alarm bells.”