Accrue interest until you die

Boomers will keep borrowing until they are planted in the ground. Banks are ramping up the marketing of reverse mortgages. These mortgages have been around a long time but now we are about to see them aggressively marketed.

Why? The baby boomers are going to be retiring soon and they are broke. They will do what they have always done; borrow more money.

Millions of homeowners refinanced during the "refi boom" years of 2003-04 and took out new loans with 15-year or 30-year terms. Some boomers now in their late 50s and early 60s have big mortgages with terms running for another quarter-century.

Now there is some good financial planning. To contrast, the majority of their parents owned their own homes outright by the time they were that age. Paying off the mortgage used to be one of the things you did to ensure your financial freedom.

Tops on the list: Proprietary reverse mortgages that allow owners to pay off their existing home loans, pull out additional equity dollars for other expenses, establish credit lines or even buy second homes - all without producing monthly payment obligations.

Now there is something a boomer can love. Free money. At least it looks free to the boomer.

Bank of America's McCormick says that one intriguing option for seniors is to pay off their existing mortgage debt by converting it to a reverse mortgage, then pull out additional money to acquire a second or seasonal home for cash. To illustrate, say the owners of a $1 million house in the Northeast have a $250,000 first mortgage. They could pay it off with the first draw on a jumbo reverse mortgage, then take another $250,000 to make a 50 percent down payment on a house in Florida. They could then do a Bank of America reverse mortgage on the Florida home, transferring all debt obligations to some time in the future.

When will all of that money and interest come due? Sometime in the future. Doesn't matter when. All that matters to a boomer is they get a new shiny object, right now.

There are costs to all this - they're just not collected upfront or monthly. Interest rates on reverse mortgages are higher than on traditional "forward" mortgages. Lender origination and mortgage insurance fees can be substantial - 4 percent typically on FHA loans - but both Countrywide and Bank of America say their fees are much lower in relative terms.

What confuses me is who will buy these houses after the boomers are dead. There aren't enough of us following after them and we already own houses. That's a lot of supply and very little demand.

What is going to happen to the banks when they have all that profit on the books and they are upside down on the houses?

Oh, I know. We'll get to pay for the boomers again.