LEVITTOWN, PA. -- Retired mechanical worker Dick Hutton was caught in the typical older person's bind.
Hutton, a 73-year-old widower, lived comfortably in a deeply loved and paid-off home. But he was slowly going broke.
His income from Social Security, interest on small savings and a tiny pension was staying about the same, while the costs of daily living, of attending to some growing medical problems and of keeping up his home, were always going up.
"Each year, I was taking a thousand dollars from savings just to pay house taxes or to buy my food," said Hutton, who has tinkered and gardened around the house for 38 years. "I hated doing it, but I had no choice."
House-rich but income-poor, Hutton set out to find a better way to organize his financial affairs.
Last year, after a long and frustrating search, he found it: a little-known but potentially important pilot program to provide federally guaranteed "reverse mortgages" to older homeowners.
In Hutton's case, a mortgage company gave him a $10,000 lump sum, then $200 a month in house payments. And not a cent has to be repaid until he leaves the house and it is sold, either at death or if he chooses to move to a nursing home. The Federal Housing Administration (FHA) guarantees the arrangement.
"For me, it's just perfect," Hutton said. "Kind of like having your cake and eating it, too."
Hutton, who has no children but many friends, can tinker around his house and dig in the garden for as long as he is healthy enough to live at home, receiving $200 a month all the while.
"For senior citizens like me, who want to live out their days at home and aren't so concerned about leaving the house to kids, this can be a very good deal," he said.
It was more than a decade ago that several innovative mortgage companies came up with the idea of offering reverse mortgages to house-rich but cash-poor older people. It looked like a natural because 61 percent of older Americans have paid off their mortgages, building equity estimated at more than $700 billion.
But the response was feeble; a decade later, no more than 5,000 reverse mortgages have been written nationwide, according to the American Association of Retired Persons (AARP).
Most of these are private mortgages, and many are 10-year term mortgages, meaning some older people may have to sell their homes to pay off the reverse mortgage before they want to. Limits like these, coupled with public ignorance about how reverse mortgages work and lenders' reluctance to get involved with the complex business, have kept older homeowners wary and away.
But Congress late last year, at the urging of the powerful elderly lobby and AARP in particular, approved a major initiative in federally guaranteed and very consumer-oriented reverse mortgages.
Two years after the Department of Housing and Urban Development began a limited test program with 2,500 government-guaranteed reverse mortgages across the country, Congress agreed to expand that program tenfold to guarantee 25,000 more reverse mortgages.
"We know there is tremendous interest out there about reverse mortgages -- we've gotten hundreds of calls and letters ourselves," said Gerry Glavey, a housing development specialist with HUD in Philadelphia.
"It's been hard so far to turn that interest into action, but now we have a plan that should appeal to many people... . Once older people see their friends or neighbors taking reverse mortgages, why, it will become a lot more accepted and could expand quickly."
Especially for homeowners 70 and older, advocates for the elderly say, a reverse mortgage can be a real lifestyle saver.
"We believe that reverse mortgages can be a good idea for many older homeowners who need cash for living and are not that concerned about leaving their house as inheritance to others," said Katrinka Sloan, a housing specialist for AARP.
Although not all the rules and regulations for the new batch of 25,000 FHA-guaranteed mortgages have been completed, the program is expected to work like this:
It is open to anyone 62 or older who owns a house with a paid-off (or in some cases, almost paid-off) mortgage. The maximum home value guaranteed is $124,000.
The first step is for the homeowner to attend a session with a HUD-approved housing counselor. No company can begin processing an FHA-guaranteed reverse mortgage until the customer has a certificate proving that a counseling course has been completed.
After that, the house must be inspected and appraised by the FHA. The monthly payment under a reverse mortgage is determined by the house's value, the customer's age and the prevailing interest rate. The older a new customer, the greater the monthly payments, because the expected lifetime will be shorter.
Under the HUD plan, a customer can also receive some lump-sum payments, can mortgage only a part of the house and can cancel the contract at any time.
Although the HUD program is open to all homeowners over 62, those familiar with reverse mortgages say they are used overwhelmingly by one group of people, widowed or single women 75 and older, usually with yearly incomes around $10,000.
"The results have been consistent in every study done of who is most interested in a reverse mortgage," said Ken Scholen, director of the National Center for Home Equity Conversion in Marshall, Minn., which studies and promotes reverse mortgages.
"It is the person who really needs the money, usually just to pay daily bills, who signs up. And that person is typically a single woman in her mid-seventies," he said.
Few believe, however, that the going will be easy, because there is a lot of consumer resistance to such an apparently revolutionary idea.
"If this idea is to really take off, there will have to be a major shift in the way that many Americans think about their homes and their finances," said Scholen of the National Center for Home Equity Conversion.
"But this kind of change is certainly not impossible. After all, before the FHA started guaranteeing mortgages in the 1930s, what is now the typical 30-year fixed-rate mortgage was considered an extremely risky thing.
"I don't think we'll be seeing explosive growth in reverse mortgages any time soon," Scholen said, "but all the pieces are finally in place for the idea to get a real test, to see if this is something older Americans want and can use."