Hundreds of thousands of carefully chosen American H homeowners will be getting an intriguing real estate proposition in the mail next year that could mean money in their pockets every month.
You, your parents or neighbors might be on the list already, so here's an advance peek at what's heading your way.
The offers will come from a New Jersey-based corporation that quietly has been raising $100 million in mortgage and venture capital.
Beginning February or March, the corporation, American Homestead Inc., will launch its "lifetime income plan" campaign aimed at an estimated 11 million people in the United States who are:
* The owners and occupants of single-family houses free and clear of mortgage debt.
* At least 65 years of age.
* Residents of metropolitan areas that have histories of steady appreciation in real estate values and population growth.
Working through local banks and insurance and stock brokers, the company will offer older homeowners the opportunity to receive monthly checks, ranging from $100 to $500 or more, as an income supplement.
The money will be "open-ended," unlimited as to the number of years or total dollar amount that any one homeowner can receive. Checks will keep coming in a guaranteed amount every 30 days until the homeowners ask the company to stop sending them, or until the owners move, sell their property, or die.
When the payment stream ends, the homeowners (or their heirs) will owe the company three things: the dollar total of the monthly checks; deferred interest computed at a fixed rate significantly below what was prevailing in the mortgage market at the time the original payment contract was signed; and a percentage of the increase in the resale value of the house since the date of the original contract.
The repayment will be expected solely from the proceeds of the sale of the house. If the home has declined in value, or the total monthly payments sent to the owners have eclipsed the property's actual resale value, the company will take the loss, with no further legal remedies against owners or heirs.
American Homestead's concept, which will be launched with a splash in the New York-Philadelphia region before spring, represents the first heavily capitalized, national entry into what's becoming the "equity-conversion" field. American Homestead's promoters expect to introduce their plan later in 1982 in major markets throughout the United States.
Broadly defined, equity conversion involves "unlocking" equity or resale-value capital developed in real estate by inflation. American homeowners age 65 and older -- one of the fastest-growing segments of the population -- have an estimated $600 billion in untapped equity sitting in their houses. According to federal statistics, of the 16 million households headed by someone 65 or older, 82 percent live in homes they own themselves, and 70 percent own their homes debt-free.
Many of these same "equity-rich" homeowners, however, have very low incomes. They are retired, trying to get by on Social Security, savings or pensions, but are often hard-pressed to keep up with rising costs. The older they get, the more likely they are to confront the unpleasant choice of selling their home and moving out, or borrowing against their equity at high rates and short terms.
Although there are locally based, fledgling efforts involving equity conversion under way in at least five communities -- San Francisco, Buffalo, Milwaukee, Essex County (N.J.) and Monoma, Wis. -- they have small budgets, and tend to be limited in their potential impact. Private bank "reverse mortgage" programs that pay elderly homeowners have been sporadic and short-lived.
American Homestead, by contrast, is raising millions of dollars of private capital from sophisticated Wall Street sources, and is positioning itself to be the leader of what could be a key financial growth industry in the 1980s and 1990s.
The keys to its approach, according to 53-year-old Homestead President James Burke, are size, computerized real estate ownership data, and pooling of actuarial risks. Burke is the immediate past executive vice president of Colonial Penn Life Insurance Co. of Philadelphia.
All loans American Homestead will make to property owners will be secured by first mortgages against their homes. The mortgages, however, will be "pooled" into packages of 1,000 loans apiece in order to cut the risks of excess payments to borrowers whose property values don't go up as expected, or who live far longer than the average person in their age bracket.
American Homestead interest rates on each custom-tailored loan will be tied to the prevailing cost of money, the age of the homeowner, and the amount of future appreciation the owner contracts to share with the firm. A typical 65-year-old owner of a $70,000 house who gave up 50 percent of all future appreciation would get about $300 a month for life. The interest rate on this loan would be about 12.6 percent.
(For more information, contact American Homestead, Inc., 724 Signal Light Road, Moorestown, N.J. 08057.)