The Development And Increasing Use Of Reverse Mortgage Loans

Anyone who watches television has almost certainly seen advertisements for reverse mortgages

. Despite the heavy promotional campaign that exits today, the premise of allowing individuals to "cash in" on the investment they have in their homes actually goes back more than 50 years.

A reverse mortgage is a plan in which individuals can take out as cash some of the equity, or the amount of ownership, in their homes. They can do this without having to sell or give up the title in their homes or take out another mortgage. The first known reverse mortgage was made by a savings bank in 1961. Others would be granted on an individual basis over a period of nearly two decades, leading to the establishment, in Ohio, of the first reverse mortgage program.

In 1984, the American Association of Retired Persons established an information center to help seniors deal with financial issues. The reverse mortgage experiment that had begun in the private sector would subsequently move to the federal government. Federal legislation was finally passed in 1987 and signed into law the following year. The first federal reverse mortgages were granted in 1989, and tens of thousands more would follow. Administered by the Housing and Urban Development (HUD) department, the federal program was expanded in 1996, and continues to assist senior citizens.

The reverse mortgage program of the federal government is officially known as Home Equity Conversion Mortgage (HECM). Single-purpose programs are available through state and local governments, but these loans are usually restricted in terms of how the funds can be used. The California Reverse Mortgage program and those in other states have over time undergone numerous revisions to accommodate changes in home markets and the needs and concerns of borrowers. In addition to government programs, reverse mortgages are available from private companies, although the number of these types of plans is relatively small.

Federal HECM reverse mortgage plans have become more popular in recent years, for obvious reasons. The poor state of the American economy has encouraged and indeed necessitated exceptional measures by many seniors in meeting their financial needs. In hopes of improving access to equity funds, the government has increased the loan limit to $625,500. Additionally, regulations have been strengthened to protect borrowers, and the government has cracked down on unscrupulous practices that had in the past targeted seniors.

As part of an ongoing commitment to increase awareness of the various aspects of these programs, the National Reverse Mortgage Lenders Association was created in 1997. Three years later, a national counseling program was introduced to help further educate consumers of reverse mortgage plans. These counseling programs have since become mandatory for anyone seeking a reverse mortgage. Other regulations introduced by the government include limitations on fees and interest rates.

Laws are essentially the same between states, although there may be variations in terms of certain rules and requirements. The California reverse mortgage law allows for repayment at any time during the loan. Further to the laws of the state, reverse mortgage loans can have either fixed or adjustable interest rates, or a combination of both.

Surveys point to the success of reverse mortgage programs. According to these surveys, more than 90 percent of the seniors who have taken them out have expressed satisfaction with their reverse mortgage loans.

by: Jordan McPelt

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