ROANOKE TIMES
Copyright (c) 1995, Roanoke Times
DATE: Monday, December 4, 1995 TAG: 9512050016
SECTION: MONEY PAGE: A10 EDITION: METRO
SOURCE: MAG POFF STAFF WRITER
One key to unlocking the value of your primary asset - your home - is a reverse mortgage, through which homeowners receive payments instead of making them. You can receive a lump sum or regular monthly payments to supplement your income.
If you have reached retirement age, chances are that you own your own home free and clear, or are nearly mortgage-free. But perhaps you have few other assets, and your pension income barely covers your living expenses.
If you're caught in this situation, you may even be in danger of losing your home.
One answer to this dilemma is tapping into your primary asset - your home. By unlocking its value, you can afford to stay there. The key is a reverse mortgage, through which homeowners receive payments instead of make them.
You can reach that value, receiving a lump sum either for an unexpected hospital payment or home repair. Or you can receive regular monthly payments to supplement your income.
The older you are and the greater the value of your house, the more money you will receive.
Reverse mortgages, which pay you for the equity in your house, are rare. The only program available in Virginia for years was insured by the federal Department of Housing and Urban Development. This had both advantages and problems.
All of that will change next month. Starting Jan. 1, the Federal National Mortgage Association (Fannie Mae) will buy reverse mortgages on the secondary market, freeing banks and thrifts to set up such programs. Area bankers said they are waiting for publication of guidelines before they offer the product.
"We will most likely do them" when Fannie Mae comes out with the rules, said Denny Early of Crestar Mortgage Co. in Roanoke.
He now gets two or three requests a month for reverse mortgages, even though Crestar - like most other local banks - is not offering them.
Early predicted some delays in introducing them because Crestar will have to prepare forms. "They will be fairly complicated and require a lot of borrower disclosure," Early said. And they must conform to the unpublished rules.
"I feel certain there will be a need for it," said Wayne Munden of Southwest Virginia Savings Bank. "I feel certain it will be offered by most lenders."
Munden recalled that he once made repeated equity loans against the house of a woman who required round-the-clock nursing care but wanted to live at home instead of at a nursing facility. A reverse mortgage would be an easy answer in such a case, he said.
Munden estimated, however, that it will be April before such a program can be in place.
Mike Hincker of National City Mortgage Co. said the decision to offer reverse mortgages is up to the company's national headquarters. He would adopt the program if it is authorized, but he receives only about one call a month asking about reverse mortgages.
"It's a matter of educating the public" about the potential of reverse mortgages, Hincker said. "It is a pretty good tool."
David Scanzoni, spokesman for First Union Corp., said the bank had a poor response when it offered reverse mortgages several years ago. But now, he said, the idea "is definitely on the table again" and could be adopted in early 1996.
The product is good for anyone who has significant home equity but is cash poor, he said.
One company that offers reverse mortgages nationwide is Household Senior Services of Chicago. Spokesman Dan Farnesi called the program the most widely available in the country today. The company received 60,000 phone calls in the first four days after advertising the program nationally in 1994, Farnesi said, suggesting the extent of the need.
The typical client, he said, is a 75-year-old woman who takes out an average of 31 percent of the value of her home. But Household Senior Services offers a checkbook for meeting specific expenses rather than an option for monthly income.
You must be 62 or older to apply, but the older you are the greater the credit line. The owner must pay taxes, keep insurance and maintain the house. As with all reverse mortgages, no payments are due on Household Senior Services loans until the house is ultimately sold. The number for reaching the company is 1-800-414-3837.
Bank United Mortgage of Virginia Beach is the only statewide lender that usually offers HUD-insured loans, but the program has been out of money since the tie-up of the federal budget. "Seniors pay the price" because the need is great, spokesman Martin Principe said.
The advantage of the program is that HUD guarantees the stream of income for as long as the person lives in the home, even after the house's value is depleted. The downside is that there is a limit on the value of the house. In the Roanoke Valley, the ceiling is $127,750. In some rural areas, the top value under the program is $105,000.
Greg Chase of Bank United Mortgage said a person using the Fannie Mae program might run through all the money available in the house. A lot of people will take advantage of the Fannie Mae program, he predicted, because residents can get more equity out of the property.
Fannie Mae estimated that 3 million senior households nationwide would be eligible for the program, and that number will nearly double as baby boomers age.
Anyone 62 or older who has no mortgage debt (or very low mortgage debt) will be eligible for the program.
At the loan closing, the borrower chooses one of three payment plans:
The tenure option that gives borrowers equal monthly payments for as long as they occupy the home as their principal residence.
A line of credit allowing borrowers to draw up to a maximum amount of cash at, and in the amounts of, their choosing for as long as they live in the house.
The modified tenure option, combining a line of credit with monthly payments.
Borrowers can change payment plans at any time.
Repayment is deferred until the borrower no longer lives at the property. Fannie Mae said a borrower cannot be forced to sell or vacate the property to pay off the loan, even if the total of the payments and interest exceeds the value of the home.
The amount must be repaid when the borrower dies, moves, sells the property or transfers title to another individual.
Fannie Mae is offering a free brochure about the program. To order a copy, call 1-800-732-6643.
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