Path: bloom-picayune.mit.edu!snorkelwacker.mit.edu!news.media.mit.edu!americast.com!americast.com!usa-post Newsgroups: usa-today.bonus From: usa-post@AmeriCast.Com Organization: American Cybercasting Approved: usa-post@AmeriCast.com Subject: bonus Mon, May 11 1992 Date: Mon, 11 May 92 05:22:18 EDT Message-ID: 05-11 0000 BONUS: Reverse mortgage market growing USA TODAY Update May 11, 1992 Source: USA TODAY:Gannett National Information Network Inflation and the car wearing out were what did it for Harry and Roxie Blocher of Westchester, Calif. Retired 16 years, they were caught in the classic senior-citizen squeeze: "Prices went up, and our income didn't follow them," says Harry, 78. So 18 months ago, the Blochers cashed in on their house. But they didn't sell. Instead, they took out a reverse mortgage. Every month, a lender pays them $500 of the $325,000 in equity they've built in their home over 36 years. The monthly payments are guaranteed to continue as long as they live in the house. DID THE DEAL WORK OUT FOR THE BLOCHERS? The Blochers don't sit at the kitchen table worrying about money anymore. They traded their 13-year-old Datsun for a 2-year-old Accord. "Every time I drive my Honda, I say to myself, `That was a good decision,' " Harry says. Four years ago, the Blochers would have had a hard time finding a lender to even consider their request for a reverse mortgage. Their lender, Capital Holding , an insurance firm, entered the market in 1989. Today, Capital Holding, based in Louisville, is the largest in the field and has $250 million in reverse mortgages outstanding. WHO IS GETTING REVERSE MORTGAGES? The reverse-mortgage market finally seems to be blossoming. That's important to the 6.8 million homeowners older than 70 who've paid their mortgages. The average borrower is a single woman, 76, living on $7,900 a year. The typical reverse mortgage is a loan backed by the equity in a house. But instead of getting money at the start and paying it back each month, the borrower gets a monthly payment from her lender or a credit line she can tap at will. She does not repay the money unless she moves out of the house. If she lives there until she dies, the lender is paid from her estate, which sells the house. If she lives so long that the payouts exceed the value of the home, the lender is stuck. WHEN AND WHERE DID THE PUSH BEGIN? Congress planted the seeds three years ago. Answering the pleas of house-rich, cash-poor seniors, it created a demonstration project in 1989. The Federal Housing Administration agreed to insure 50 reverse loans made by each of 50 lenders. But the idea didn't catch on. Lenders were unwilling to train staff and master a new market to make only 50 loans. By mid-1991, the FHA had insured only 526 loans of an authorized 2,500. WHAT OPENED THE MARKET? Last summer, Congress eliminated the cap on how many loans a lender could make and allowed the FHA to insure 25,000 loans. It also opened the market to all 10,000 FHA lenders. Since then, the number of financial institutions making FHA-insured reverse mortgages has jumped from 18 to 64. Now, homeowners in 39 states, vs. only a handful of states before 1989, can find an in-state reverse-mortgage lender. To date, 1,597 insured reverse mortgages have been made and 331 more are in the pipeline. Of course, all lenders are free to make reverse mortgages not insured by the FHA. ARE BANKS GETTING SUPPORT? Equally crucial has been the start of a secondary market. The Federal National Mortgage Association has begun buying reverse loans from lenders and tucking them into its portfolio. Fannie Mae becomes the one that coughs up the money for borrowers each month, not the lender who originated the loan. More lenders are likely to make the loans if they have an investor like Fannie Mae shelling out the monthly payments. Last month, Fannie Mae began conducting training sessions for 1,500 lenders to teach them how to make the loans. IS ANYONE LOOKING OUT FOR THE BORROWERS? Inquiries about reverse mortgages are the No. 1 topic of letters to the American Association of Retired Persons. AARP is training loan counselors to explain them. On FHA-insured loans, a borrower must meet with a loan counselor not affiliated with the lender before the borrower can even apply for a reverse mortgage. That's a safeguard Congress installed to make sure the elderly understand how the loans work. Kenneth Austin, co-owner of Wendover Funding, a nationwide lender based in Greensboro, N.C., likes the borrower's children to attend the counseling sessions, too. IS THE MARKET SECURE? The market still has some rough spots. There are only 1,700 trained counselors - typically staff members of civic groups - to advise borrowers. In many parts of the country, they're hard to find. Fannie Mae hasn't sold any reverse mortgages to investors. Robert Sahadi, Fannie Mae's vice president for housing initiatives, says its $123 million pool of reverse mortgages is not large enough to attract the interest of big money managers. And the Federal Home Loan Mortgage Corp., which operates like Fannie Mae, hasn't purchased a single reverse mortgage, although it is looking into the market. ARE LENDERS EAGER TO JOIN THE MARKET? Most lenders also are waiting and watching. "Each time we see them mentioned (in the news), we all talk about it and ask if anybody is asking us about one of these loans," says Sam Lyons, senior vice president for mortgage banking at Great Western Bank, one of the nation's biggest savings and loans. The answer: no. Reverse-mortgage supporters say the reason is that many seniors don't have the information they need to understand the loans. Reverse mortgages are complex, and seniors "don't want to be fooled," says Arthur Levine non-profit agency Echo Housing in Oakland, Calif. WHAT SHOULD BORROWERS BE CONCERNED WITH? The most common question seniors ask: Can the lender take my house? "I've never heard of someone being forced out of their home because of a reverse mortgage," says Bronwyn Belling, who directs AARP's Home Equity Information Center. What borrowers ought to worry about is cost. Although not paid until the loan comes due, fees are high, and interest rates can be high, too. In the Blochers' case, the fees were 7% of their home's equity plus $3,000 - a total of $25,750. And they pay 10% interest. WHAT ARE THE BORROWERS GIVING UP? Borrowers have to weigh the importance of passing their home unencumbered to their children against living on little money now. That's not a tough choice for many. The median annual household income for seniors, measured in a 1989 Census survey, is $16,700, vs. $46,000 for households ages 35 through 44. HOW DO THE CHILDREN REACT? Charles and Josephine Pitcher of Mountain Lakes, N.J., decided to take the money now. Their six grown children are aware of their reverse mortgage, and "it's no sweat, no jealousies, no nothing," Charles says. Of their potential inheritance, he jokes, "I told them we'll probably spend every nickel." Bonus Editor: Ed Kelleher. (1-919-855-3491) Making copies of USA TODAY Update (Copyright, 1992) for further distribution violates federal law. This article is copyright 1992 Gannett News Service. Redistribution to other sites is not permitted except by arrangement with American Cybercasting Corporation. For more information, send-email to usa@AmeriCast.COM