More homeowners turning to reverse mortgages

Their retirement accounts flattened by the sour economy, older homeowners are increasingly turning to so-called reverse mortgages -- the sometimes expensive loans that don't require payments until the borrower sells the home or dies.


The Federal Housing Administration insured 11,261 reverse mortgages in March, a jump of 17% from the same month last year.

Experts say the loans -- which are only available to those over age 62 -- are on the rise for several reasons, including provisions in the federal stimulus package that have made them cheaper and easier to get.
Increasingly, lenders say, even well-off seniors are relying on the loans to provide monthly spending money at a time when their retirement accounts and other income may be limited.

Strapped homeowners with fairly sizable mortgages are paying off their notes and living rent-free in their homes, said Mike Branson, Chief Executive of All Reverse Mortgage Co. in Garden Grove.

"We're getting homeowners with $1-million homes coming in now, which would never have been a HUD loan before," he said.

The loans are attractive because they require no credit report or proof of income, since the homeowners don't make payments. The current interest rate is about 4%.

But like other loans in the current credit crunch, nearly all of the business in reverse mortgages is being done with the help of the federal government.

Under the terms of the stimulus package, the Federal Housing Administration is now insuring such loans up to $625,000, an amount nearly double last year's rate. That means banks and other lenders that make the loans are covered if the house declines in value.

Reverse mortgages allow homeowners to tap into the value of their homes in the amount of a loan determined by an equation that factors in the owners' age, life expectancy and the value of their property, said Nancy West, a spokeswoman for the U.S. Department of Housing and Urban Development.

When the homeowner dies or sells the home, the lender is paid off first and any money left over goes to the estate or the homeowner, she said.


Western Pacific Home Loans- Reverse Mortgages