The U.S. Department of Housing and Urban Development has taken action against Honolulu-based reverse mortgage lender Financial Mortgage USA Inc. for allegedly misleading elderly borrowers and committing other violations of federal lending requirements.

By failing to maintain a clear separation between its lending operation and its affiliated insurance company, Financial Mortgage USA confused elderly borrowers who could not tell with whom they were doing business, HUD said in a news release.

Financial Mortgage USA failed to discuss the options for receiving reverse mortgage proceeds or simply ignored borrowers' stated preferences in disbursing the reverse mortgage proceeds," HUD said.

"FMUSA and its affiliate Estate Planners of America then duped the borrowers into purchasing annuities from Estate Planners of America, which borrowers did not request and did not understand what had been purchased," according to the HUD release.

HUD's Mortgagee Review Board said it was particularly concerned with one case in which Financial Mortgage USA steered an 88-year-old borrower into purchasing an annuity that would not mature until she reached her 104th birthday.

The Mortgagee Review Board is proposing to withdraw HUD and Federal Housing Administration approval of Financial Mortgage USA. The Board also is imposing the maximum $97,500 civil penalty against the company, which has 30 days to respond and seek a hearing before an administrative law judge.

Attempts to reach officials from Financial Mortgage USA were unsuccessful. The company has vacated its office on Kapiolani Boulevard and disconnected its telephone.

Under a reverse mortgage, a lender typically provides senior homeowners a lump-sum payment, monthly payments or an equity credit line. Amounts paid to owners are secured by home equity and become due with interest when the owners sell the property or otherwise cease using it as their residence. Borrowers are guaranteed the right to remain in their houses indefinitely, even if their debt exceeds the property's value.

Financial Mortgage USA was the subject of eight complaints filed with the state Department of Commerce and Consumer Affairs between 2006 and 2009. Six were dismissed for "insufficient evidence," one was settled and one is pending. In addition, DCCA has designated Financial Mortage USA as a business that "is not in good standing."