Federal regulators and lenders are moving to address a growing problem with defaults on reverse mortgages. Last week, I detailed how defaults can happen on these loans to seniors, and a new initiative by the U.S. Department of Housing and Urban Development (HUD) to beef up counseling services as part of a broader effort to deal with non-performing loans.

The new HUD initiative comes in the wake of criticism of the reverse mortgage industry’s marketing and consumer counseling practices. While it’s impossible to make a direct connection between the criticisms and the growing number of defaults, advocates argue that aggressive marketing has resulted in reverse mortgage sales in situations where the loans may not have been a good fit.

A June 2009 report by the U.S. Government Accountability Office (GAO) uncovered misleading advertising claims by lenders, including ads that implied HUD’s Home Equity Conversion Mortgage (HECM) is a government benefit (it’s not – HUD only regulates and insures the loans); that borrowers can never lose their homes; and that borrowers can never owe more than the value of their homes.

“There are some benefits to a suitable reverse mortgage,” says Norma Garcia, senior attorney at Consumers Union and co-author of a recent study critical of reverse mortgage lending practices. “But it’s for a very particular need and the industry has been marketing them as though they are good for everyone.”

Under federal law, potential HECM borrowers are required to go through pre-loan counseling sessions intended to make sure they understand HECMs and their risks. But the GAO study pointed to inadequacies in the counseling process, citing instances it uncovered where federal standards for pre-loan counseling were not met. GAO found instances of counselors who failed to discuss other lower-cost options available to potential borrowers outside of HECMs, and the financial implications of an HECM.

The report also found instances of inappropriate (and now illegal) cross-marketing of financial products such as deferred annuities or other insurance products alongside HECMs.

A spokeswoman for HUD notes that new counseling standards have been implemented since the GAO report. And earlier this month, HUD announced $3 million in new funding to housing counseling agencies to help them provide guidance to borrowers facing default. And the FHA recently beefed up the financial education required under the counseling program.

Reverse mortgage loans, which allow seniors to convert home equity into cash, have become more popular in recent years. But now the reverse mortgage industry and government regulators are dealing with a potential nightmare: a growing number of loan defaults that could lead to foreclosures, and even evictions of elderly homeowners in some cases.

Non-performing loans represent a small share of overall reverse mortgages, but their number has grown quickly in the past two years.  (Borrowers aren’t required to make monthly mortgage payments, but can end up with a loan in default if they fall behind on their property taxes and insurance payments.) The spate of non-performing loans has raised concerns about the prospect of seniors losing their homes, and also about the risk of losses for the Federal Housing Administration Insurance Fund, which insures the loans.

Reverse mortgages are available only to homeowners over age 62. They allow seniors who need cash to tap home equity while staying in their homes. Unlike an equity line of credit, repayment of a reverse mortgage typically isn’t due until the homeowner sells the property or dies. Reverse mortgages have been criticized for high upfront fees, which can total five percent of a home’s value.

The most popular loan type is the Home Equity Conversion Mortgage (HECM), which is administered by the U.S. Department of Housing and Urban Development (HUD); the current loan limit on a standard HECM is $625,500, although a new “saver” HECM was introduced last fall with lower loan limits and fees.

HECMs have no monthly loan payments, but it’s still possible for borrowers to default, because loan terms require them to continue paying property taxes, hazard insurance and any required maintenance on their property. About five percent of the 550,000 loans outstanding are non-performing under those terms, according to Barbara Stucki, vice president of home equity initiatives at the National Council on Aging (NCOA).

Reverse mortgage lenders typically advance tax or insurance bill payments in cases where borrowers haven’t tapped their maximum loan amounts, adding those costs to the loan balances. But in cases where loan amonts are exhausted, borrowers have been falling into a limbo of sorts, due to a lack of clear guidance from federal regulators on how lenders should handle defaulted loans. The number of loans in limbo rose 173 percent between May 2009 and March 2010, according to an audit by the Inspector General’s office of the U.S. Department of Housing and Urban Development (HUD).

The prospect of foreclosure and possible evictions of seniors has made HECM default a political hot potato for the federal agencies involved, which include HUD, the Federal Housing Administration and Fannie Mae. Until last year, Fannie purchased most HECM loans from issuers, but it has exited the market for reasons unrelated to defaults.

Older workers are less likely to get laid off, but they’re having a much harder time finding new work than younger job-seekers.

New research by the Urban Institute shows that seniority helps protect older workers from job loss — the average jobless rate for workers over age 55 in 2010 was 7.7 percent for men, and 6.2 percent for women. That’s considerably lower than the national unemployment rate, which stood at 9.4 percent in December. Overall, workers age 50 to 61 were 34 percent less likely to lose their jobs during the downturn than younger workers, the Urban Institute researchers found.

But workers in that age group who have lost their jobs in the recession are one-third less likely to find new work than their counterparts age 25 to 34. And workers over age 62 were half as likely to be re-employed:

What’s more, workers who do find new jobs are accepting lower pay. Median hourly wages for displaced men age 50 to 61 who became re-employed from 1996 to 2007 fell 20 percent below the median figures for their former jobs; by contrast, wages fell just 4 percent for men age 25 to 34.

The findings point to the difficulty of keeping workers on the job longer — an aim of policymakers hoping to reduce pressure on federal spending for entitlement programs such as Social Security.

“We need to get people to work longer so they can help produce the goods and services necessary to promote economic growth and help pay taxes to fund public services,” says Richard Johnson, a senior fellow at the Urban Institute and a co-author of the report. “But that can’t happen unless seniors can find work. We need to devote more money to training and employment services for older workers. The federal government has only one small employment program targeted to older people — we need more. We should also consider extending unemployment benefits for older people, since it takes them so long to find work when unemployed.”

Public opinion on healthcare reform is divided — Gallup says 46 percent of Americans back Republican efforts to repeal the law, 40 percent want it to stand and 14 percent have no opinion.

Some Americans oppose the law on ideological grounds. But the poll numbers also reflect an enthusiasm gap stemming from the simple fact that the most important provisions of the Affordable Care Act (ACA) won’t kick in for another three years — an eternity in our hyperactive political culture.

Pre-existing conditions offer an instructive example. In the current health insurance marketplace, it’s very difficult for people with pre-existing conditions to buy a quality policy at an affordable price. The problem disproportionately affects people over age 50, since so many of them have chronic conditions that lead health insurance companies to turn them down.

A recent report by the Commonwealth Fund found that 15 percent of all Americans age 50 to 64 were uninsured in 2009; their ranks grew by 1.1 million that year, to 8.6 million. Meanwhile, another 9.7 million in this age group had coverage with such high deductibles that they were considered “effectively underinsured.” Starting in 2014, the ACA will get these folks covered through expansion of Medicaid and the creation of new private insurance exchanges.

In the meantime, the ACA put a Band-Aid on the problem by setting aside $5 billion to fund a pre-existing insurance program (PCIP) that operates until the end of 2013, when enrollees will shift to coverage via the new exchanges.

The PCIP gave states the option of using federal dollars to administer their own programs, or to allow the federal government to offer coverage. Twenty-seven states are offering their own plans.

But the PCIP plans barely made a dent last year. Around 8,000 people enrolled nationwide, and most of those were in a handful of big states with very active plans — Pennsylvania, California, Illinois and Ohio.

When President Obama delivers his State of the Union address on January 25th, all indications are that he’ll embrace many of the deficit reduction recommendations put forward last month by the co-chairs of his National Commission on Fiscal Responsibility & Reform.

A key section of the wide-ranging report offers recommendations to bolster the long-term fiscal health of Social Security — despite the fact that that Social Security has no direct impact on the federal deficit. Among the commission’s controversial recommendations is an increase in the age when workers can receive full Social Security benefits — the so-called normal retirement age (NRA).

The NRA increase would be phased in very gradually — to 68 in 2050 and 69 in 2075. But the higher retirement age would come on top of an increase in the NRA already being implemented under the Social Security reforms of 1983. Under that set of reforms, the NRA is rising from 65 to 67 in 2027.

Supporters of a higher NRA note that the nation’s rising longevity has reduced the relevance of 65 as a symbol of old age. Indeed, the labor force appears destined to get very gray in the next couple decades. Nearly 75 percent of 55- to 64-year-olds will be working in 2018, according to economist Barry Bluestone, a far higher rate than the 65 percent who were working in 2008. Likewise, Bluestone thinks 30 percent of Americans age 65-74 could be working in 2018, much higher than the current rate of 25 percent.

Certainly, there’s nothing sacrosanct about 65, the NRA that was adopted when Social Security was created in 1935. But the trend toward working longer doesn’t justify cutting Social Security benefits.

The program’s benefits already are modest — the average benefit paid is just over $14,000. And another increase in the NRA will impose a lifetime benefit cut for everyone, no matter the retirement age.

What’s more, working longer presents challenges that older workers are ill-equipped to face, says Marc Freedman, CEO of Civic Ventures, the non-profit devoted to encouraging older adults to blaze new career trails.

The new GOP-led House of Representatives took initial steps last week to pass legislation repealing the new healthcare reform law, with one senior legislator calling it “an economic and fiscal disaster of unprecedented proportions.”

Donna Kent-Croushore is experiencing disaster of a different kind.

Kent-Croushore lost her family’s health insurance last November when her employer for the past 27 years in Plymouth Meeting, Pennsylvania, went out of business. She spent most of the holiday season scrambling to find coverage for herself and her husband, Rick Croushore.

The couple’s story illustrates how quickly people who consider themselves well-covered can face skyrocketing health insurance costs that, in turn, threaten their overall economic security. And it shows how the new Affordable Care Act (ACA) will help people like Donna and Rick — assuming that legislative and court challenges don’t eviscerate the new law.

Kent-Croushore had been a director of account management for a publishing and printing company that she joined fresh out of high school as a proofreader. The business succumbed last fall to growing offshore competition, and since the company no longer existed, COBRA health insurance wasn’t an option.

Donna is 58, and Rick is 64. They’re too young to qualify for Medicare, and Rick has a serious pre-existing condition that makes shopping in the current market for individual insurance policies a nightmare. He suffers from COPD – a common lung disease that in Rick’s case is tied to emphysema. He’s been hospitalized for the illness and has been on an expensive year-long drug treatment regimen with no end in sight.

Rick no longer works and had carried on Donna’s group policy at work. While Donna knew that Rick’s pre-existing condition would be an obstacle to getting replacement coverage, she was surprised to learn that insurers didn’t look at her much differently. “I started getting turned down because of a herniated disc in my neck ten years ago, and some arthritis in my thumbs. I take Motrin when it hurts and go on about my business. I can’t open jars any more, but according to the insurance companies, I’m too risky for them to take on,” she says.

The graying of America prompts debate about nuts-and-bolts issues such as inadequate retirement savings, and the future of Social Security and Medicare. But Ted Fishman is a big picture thinker with a deep understanding of global trends. In his new book, Shock of Gray, he explains how the aging of the world’s population will drive globalization and immigration patterns in the years ahead, and determine the economic destiny of nations – and the news isn’t all bad.

Shock of Gray grew out of themes Fishman — a veteran journalist and former Chicago Mercantile Exchange trader — explored in his first book, New York Times bestseller China Inc.: How the Rise of the Next Superpower Challenges the World.

Q: What do Americans need to understand about the global aging phenomenon?

A: First, populations age differently than people do. People age minute by minute according to the clock. Populations age when people live longer than before and when families are smaller than in the past. America’s baby boom was more robust than in other, more rapidly aging countries, so the sheer number of Americans in later life is big. But the U.S. is aging a little less rapidly than other developed countries, and slower than some developing countries, including China and Mexico. Still, our median age pushes higher every year.

Robust immigration into the U.S. helps America age less quickly than most other aging countries, but the numbers of young immigrants will never be enough to reverse the aging of our population.

Q: What are the implications for the U.S. of having such a lopsided population?

A: It’s a wonderful circumstance overall, since we get to live longer, but we have to adjust to a reality humankind has never faced before. Americans who reach age 60 have a pretty good chance of getting to 95. Our aging country faces a swelling number of dependent elders at the upper reaches of the lifespan. Just as it will be more common for people in their late sixties and seventies to work, it will also be common for those older workers to have living parents to tend to. By the way, our workforce over 50 will grow to three times its current size, but the number of younger workers will stay nearly constant. Virtually all the expansion of the U.S. workforce will be in the upper age range.

The recent bond market rout may be bad news for bond investors and anyone planning to refinance a mortgage anytime soon. And it’s certainly not what Federal Reserve Chairman Ben Bernanke had in mind when the Fed launched its massive $600 billion bond-buying spree.

But if the trend toward higher interest rates continues, it will be very good news for retirees starved for low-risk return on their portfolios.

Ultra-low interest rates have helped banks, corporations and government to stabilize in the wake of the 2008 financial crisis, but they’ve been nothing but bad news for retirees. People living on fixed incomes have been forced to cut expenses, eat into principle or rely on higher-risk fixed income investments or stocks.

The problem isn’t limited to interest rates. The erosion of traditional defined benefit pensions means that just 20 percent of private sector workers can count on monthly pension income. And Social Security is replacing a smaller percentage of income due to the increasing full retirement age implemented in 1983, rising Medicare Part B premium deductions and more Social Security income is subject to income tax.

Inflation also poses a big threat to retirees. Social Security hasn’t paid a cost-of-living adjustment for the past two years and its formula doesn’t recognize the higher rates of medical inflation experienced by seniors. Near-zero interest rates on money market funds and certificates of deposit exacerbate inflation’s impact.

But rising rates could yield a big change in the outlook for retirement security. Barry Glassman, president of Glassman Wealth Services, thinks that’s just where we’re headed. “We’re coming to an end, in the near term, of the Fed artificially keeping rates low. And high deficits mean the supply of debt from the government won’t stop – but demand from the Fed to buy it will. “That means we’ll see interest rates heading higher – not into the stratosphere, but a plateau higher than we’re at today. It could take 18 to 24 months, or it could happen in six months.”

Glassman argues that “retirement could be saved for a lot of people” if long-term certificates of deposit get to five percent sometime in the two years. “If retirees can earn 5 percent with very low risk, that will be very competitive with a higher-risk option like stocks. At that interest rate, there will be a huge wave of demand from retirees who will want to lock in at that rate for 10 years. They’ll take money out of money markets and the stock market to do it.”

When it comes to pensions, the advice of playwrights George S. Kaufman and Moss Hart doesn’t apply – you can, in fact, take it with you.

About one-third of private sector workers who have traditional defined benefit pensions are given a choice at retirement between a monthly annuity-style payment or a lump sum. Most retirees choose the lump sum – even though it’s rarely the smartest move.

Most retirees will come out ahead over the course of retirement with an annuity. And, lump sums are getting to be an even worse deal due to recent pension reform legislation that mandates changes in the way lump sum payments are calculated.

Under federal law, pension plan sponsors calculate lump sums using longevity and interest-rate statistics, aiming to match the amount you’d need to invest to match the annuity-style checks you’d receive from your normal retirement age. In that sense, the choice between lump sum and annuity should be neutral, producing the same result over time.

But that’s not the case. While the outcome depends on a number of factors —how you invest the money, whether you’re a male or female, and whether you’re married—most people will come out ahead with an annuitized pension. Here’s why:

Lower lifetime income. Say you’re entitled to a monthly pension of $1,000 at age 65, payable for life. That converts to a lump sum of about $140,000. Of course, that sounds like a lot more than $1,000 – and that’s why so many retirees take the lump sum if they’re offered a choice. But the $1,000 comes every month of your life, in good times or bad.  And if you’re married, you could elect a joint-and-survivor benefit with a slightly lower monthly payment around $850. If you go first, that payment continues until the death of your spouse.

The lump sum? You’ll need to invest it to generate lifetime retirement income, and you run the risk that you’ll withdraw too much, suffer market setbacks or live much longer than average – creating the need to stretch your nest egg much further. Actuaries say the odds of success with a monthly payment are much higher.

The oldest baby boomers start turning 65 on January 1st, and the biggest generation has plenty to worry about as it starts filing Medicare applications. The road to retirement security is filled with potholes; here are the five threats that worry me most looking ahead to 2011:

1. Social Security reform. Members of Congress and President Obama were for deficit cutting before they were against it, passing a massive $858 billion tax cut package this month. But they’ll be for deficit cutting again in 2011, and Social Security will be in the cross-hairs. Most of the deficit reduction plans issued this month by Washington’s serious people would lift the retirement age, and reduce cost-of-living adjustments.

The serious people should be mindful of the following myths and realities when Social Security comes up again for sacrifice in 2011:

Myth: The boomer age wave will push Social Security into insolvency and rob our grandchildren of their future.

Reality: Social Security has a $1.5 trillion surplus that has been built up — intentionally — since the 1980s to fund boomer retirements. They’re already paid for; the program’s solvency problem starts around 2035. And the real losers in Social Security “reform” will be GenXers and the generations that follow.

Myth: We should raise the Social Security retirement age, because we’re all going to work longer, anyway.

Reality: Working longer is a key strategy for improving retirement security ― for knowledge workers and professionals best positioned to pull it off. It doesn’t work well for workers who do physically demanding low-income jobs. Proposals to put these workers on disability benefits could be more expensive than just keeping the current retirement age rules.