The number of senior citizen reverse mortgages that the federal government insured doubled this year, compared with last, according to a top housing official.
"When you close more than 36,000 of these loans in one year in excess of $6 billion, you stop considering it a little something on the side," John Weicher, the assistant secretary of housing who oversees Federal Housing Administration programs, told 400 lenders gathered for the recent annual meeting of the National Reverse Mortgage Lenders Association.
He said the increase surprised his department and required adding new personnel to handle the flow.
Reverse mortgages allow senior citizens to draw cash out of the equity built up in their homes without risking the loss of those homes. The Housing and Urban Development Department, through the FHA, backs the most popular reverse program, known as the Home Equity Conversion Mortgage, which accounts for about 90 percent of all reverse loans nationally. The agency had insured a previous high of 18,097 Home Equity Conversion Mortgage loans during fiscal 2003. The current federal fiscal year ended Thursday, but with more than 34,000 loans closed at the end of August, the agency had reached Weicher's 36,000-plus figure by this week.
Reverse mortgage representatives nationwide agreed with Weicher that phenomenal growth of the industry could be attributed to consistently low interest rates, effective marketing, the aging population and strength of the housing market.
"Our loan volumes have more than doubled in the D.C.-Baltimore area," said Shelley Giordano, regional manager for the reverse mortgage division of Wells Fargo Home Mortgage. "We've gone from five loan people in this area a year ago to 22 reverse mortgage specialists now. And, we're still hiring."
Giordano recently closed a loan for an 82-year-old woman in Baltimore who had never before bought a home. "She's the oldest first-time home buyer I've ever known," Giordano said. "We were able to put it together through a reverse. She's now in her own home, with no mortgage payments."
Other borrower data that Weicher presented included:
* The average age of a reverse mortgage borrower rose to 74 in 2004 from 76 in 2000.
* The proportion of women with reverse mortgages fell from 57 percent in 1990 to 48 percent in 2004.
* The proportion of couples increased from 30 percent in 1990 to 36 percent in 2004.
* The average property value increased from $142,000 in 1990 to $214,000 in 2004.
An expensive, awkward idea when first tried 30 years ago by independent bankers, reverse loans evolved into a "demonstration program" sponsored by HUD in 1993 and now have become a permanent vehicle that enables seniors to pull tax-free cash out of their home equity.
Reverse borrowers make no monthly payments on a their mortgage during its term. The loan comes due when the borrower permanently moves out of his home. However, seniors can "outlive" the value of their home without being forced to move. The homeowner cannot be displaced and forced to sell the home to pay off the mortgage, even if the principal balance grows to exceed the value of the property. If the value of the house exceeds what is owed at the time of homeowner's death, the rest goes to the estate.
To qualify, consumers must be at least 62 years of age and own their own home. The home does not have to be paid off entirely, but the greater the equity, the greater the reverse loan amount. Borrower age, home location and loan type also factor into the reverse mortgage amount.
Reverse mortgages are available in a variety of programs including a lump sum draw, monthly payment, line of credit or a combination of the above. Funds remaining in the line of credit continue to increase over time at a rate half a percentage point greater than the prevailing interest rate on the loan.
"This is what I believe to be the remarkable feature of the reverse mortgage," said Richard Garrigan, author and Professor of Finance Emeritus at DePaul University. "No other mortgage that I know allows this type of growth in a line of credit. It's going to make a lot of people feel better about paying the fees to obtain the reverse mortgage."
Sarah Hulbert, vice president and national director for Seattle Mortgage and the co-chair of the reverse mortgage lenders conference, said his association's members were actively pushing for a single national loan limit. HUD's current guidelines tie loan limits to average household incomes in specific counties. Typically, major metropolitan areas have higher loan ceilings than rural areas, regardless of the value of the home.
A "jumbo" reverse mortgage, offered by Financial Freedom Funding, does not have the geographical restriction.