Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, March 17, 1991 TAG: 9103180317
SECTION: HOMES PAGE: E-5 EDITION: METRO
SOURCE: By JANE BRYANT QUINN/ WASHINGTON POST WRITERS GROUP
DATELINE: NEW YORK LENGTH: Medium
It could start now. All 10,000 institutions who make loans insured by the Federal Housing Administration (FHA) are newly eligible for its reverse-mortgage program. This program began two years ago as an experiment; now it's open to everyone. But your local lenders may not have noticed. The government wrote them on Jan. 10, but that part of the letter was easy to miss.
So I'm throwing you the ball. Call or write your lenders. Ask them to call the nearest field office of the Department of Housing and Urban Development and get Mortgagee Letter 90-17, HUD Handbook 4235.1 and 24 CFR (Code of Federal Regulations) 206. Those documents provide basic information on how to get started in reverse-mortgage lending.
I emphasize that these loans are not yet generally available. But they could be if there's strong public demand.
A true reverse mortgage is many a senior citizen's dream. It turns the equity value of your home into a source of income, without your having to sell and move. It works like this:
(1) A lender agrees to make you a loan against the value of your house. But you normally don't get a fixed sum up front. Instead you get a check each month or a credit line to draw on whenever you want.
(2) The size of your check or credit line depends on your age, the age of your spouse, and how much equity you have in your house. These checks continue as long as you live there.
(3) You usually pay no cash at closing. Nor do you pay any interest currently. When the house is sold (because you leave it or die), the loan, its upfront costs and all the interest are paid out of the proceeds. You never owe more than the house is worth.
Reverse mortgages are best used by senior senior citizens. The older you are, the higher the payment you'll get from your home. The typical borrower is a 75-year-old woman with an income of $9,750. Married borrowers have incomes averaging $15,000. A reverse mortgage gives them an extra $300 to $600 a month.
So far, lenders haven't been in any hurry to offer these loans, says Ken Scholen of the Center for Home Equity Conversion in Marshall, Minn. It takes time and effort to understand reverse mortgages and develop a market. By law, FHA lenders must provide borrowers independent counseling on the alternatives. For example, a senior may be better off selling the house, moving into an apartment and living on the cash received.
Still, the potential market is substantial, Scholen says, especially for reverse mortgages that include lines of credit. In the FHA's pilot project, two out of three borrowers chose the credit line instead of, or in addition to, a regular monthly check.
Furthermore, the FHA now makes reverse lending relatively easy. Banks can get funding from the Federal National Mortgage Association; Wendover Funding in Greensboro, N.C., will service the loans and train lenders in how to use the program; and the American Association of Retired Persons has developed a model law to facilitate state regulation. Only Texas generally prohibits such loans and there may be a loophole even there.
Besides the FHA, three private lenders have reverse-mortgage plans but right now two of them are out of the market. Their programs assumed a rate of appreciation in home values that isn't realistic today. Borrowers who took their loans got better terms than would now be available.
Two companies are working on a 1990's-style loan: HomeFirst in San Francisco and Home Equity Partners in Dallas. Borrowers would get lower payments, or pay higher costs, than were typical in the 1980s. But the income would last for life, even if they left their homes. Robert Bachman, president of Home Equity Partners, is even considering a plan for Texas, whereby the firm would buy 75 percent of the home and make payouts in annuity form.
Those ideas, however, are still on the drawing board. The FHA's program is up and running. So call up your lenders, and try to persuade them to take a look.
by CNB