Your Mortgage : FHA Begins Reverse Mortgage Pilot Program : Equity: Elderly homeowners can use federally insured loans to provide monthly income.

Five western lenders will soon offer the first federally backed reverse-mortgages, those hard-to-find loans designed to aid equity-rich but cash-poor older homeowners.

Only two of the lending institutions--Encino-based Beverly Hills Securities Co. and Riverside-based Directors Mortgage Loan Corp.--are making the federally insured loans in Southern California.

The other three institutions chosen by the Federal Housing Administration to take part in its new pilot program are California Bank of Lodi, Philadelphia Freedom in Las Vegas and First California in San Rafael, said Yville Edwards at the FHA’s regional headquarters in San Francisco.

Reverse mortgages are home loans that work backward. Instead of a lender making a loan to a buyer who will repay the money in monthly installments, the lender typically sends a check to an existing homeowner in monthly increments.

The owner usually doesn’t have to pay the money back until the term of the loan expires or the borrower sells the home and moves. If the homeowner dies, the loan is repaid by the estate.

Although there are several lenders that offer reverse mortgages in California and other states, the loans they make are not insured by the FHA and, some experts say, they don’t have such attractive terms and flexibility.

Many prospective borrowers apparently agree. The FHA is allowing each of the institutions that are taking part in the pilot program to make 50 of the loans, yet some of the lenders have been deluged with requests from hundreds of prospective borrowers.

“We’ve got more than 400 people on our waiting list, and we haven’t done a bit of advertising,” said Verlee Gale of Beverly Hills Securities.

“We could probably make a lot more of the loans, but we just don’t have the government’s authorization.”

That could change. Although legislation that established the new reverse mortgage program requires the FHA to insure only 2,500 of the loans nationwide, Jack Kemp, secretary of housing and urban development, recently said he supports quadrupling the size of the project.

More important, some experts say the government’s involvement could encourage more private-sector lenders to begin offering reverse mortgages--and more competition would likely mean lower borrowing costs for consumers.

Exactly how much you can borrow under the FHA program or through reverse-mortgage programs run by private-sector firms depends on a number of factors, including your age, amount of equity and the type of reverse mortgage you select.

Like many other reverse-mortgage programs, the FHA program lets buyers choose from three types of mortgages:

A “tenure” mortgage, which allows a borrower to receive pre-set monthly stipends for as long as he lives in the home. The money doesn’t have to be paid back until the borrower moves or dies, which makes this type of loan particularly attractive to someone who plans to stay in the house for the rest of his life.

A “term” loan, which gives the borrower monthly stipends for a specified period--say, five or 10 years. Although the loan will have to be repaid on a specified date, it often attracts borrowers who need some monthly cash until a pension or annuity kicks in, or people who plan to eventually sell their house and move to a retirement home.

A “line of credit” that lets homeowners borrow money as it is needed and doesn’t have to be repaid until the borrower moves out or dies. It’s the most flexible of the three loans, but borrowers need discipline to avoid using the money all at once.

Unlike most other reverse-mortgage programs, the FHA program also allows lump-sum draw-downs on the loans.

For example, if you had a term loan calling for monthly stipends of $300 but suddenly needed $5,000 to repair your roof or pay medical expenses, you could alter your loan arrangement and get the $5,000 you need immediately.

The FHA is insuring both fixed-rate and adjustable-rate loans. Importantly, it also lets you and your lender work out a lower rate on the loan if you agree to give part of the home’s future appreciation to the lender.

For example, you might be charged a 20% interest rate if you declined to share a portion of your future profits with the lender, or a lower rate if you agreed to give the institution some or all of your future appreciation. Either way, the equity you built up before the reverse mortgage was made is yours to keep.

You must be at least 62 years old to be eligible for the new FHA program. If you’re married, both you and your spouse must be at least 62.

You must also own your own home free and clear, or have it nearly paid off. Owners of condominiums and townhouses are eligible, as well as people who own single-family homes.

Like most other lenders that make reverse mortgages, institutions that take part in the FHA program will require prospective borrowers to first contact a third-party counseling firm staffed by professionals who discuss each individual’s financial situation and borrowing options.

For example, older homeowners who need a large amount of cash but can afford to repay the loan in monthly installments are usually better off taking out a simple home-equity loan, experts say. Doing so will usually save them thousands of dollars in interest charges, and they probably won’t have to sell the property in order to pay off the loan.

A sale-leaseback is another option. An older couple can sell their home to their child or a private investor and simultaneously sign a lease to remain in the house for as long as they want.

The couple gets to keep the sale proceeds and may be eligible for the one-time exclusion that lets them pocket up to $125,000 of their profit tax-free. The child or investor gets to collect monthly rent payments, take tax deductions like other landlords, and eventually has the option of occupying the house when the parents move away or die.

Since reverse mortgages, home-equity loans and sale-leasebacks entail some complex tax and legal questions, you’ll want to consult with an accountant, attorney or other qualified professional if you’re thinking about tapping your equity.

You’ll also want to read up on your borrowing options. One of the best sources of information is a free, 44-page booklet published by the American Assn. of Retired Persons.

The booklet discusses reverse mortgages and other ways that older people can use the equity in their home. It also includes a list of reverse-mortgage lenders in California and other states.

Requests should be sent on a post card to “Home-Made Money: Consumer’s Guide to Home-Equity Conversion, AARP Fulfillment, 1909 K St. N.W., Washington, D.C., 20049. Delivery takes about six weeks.

COMPANIES OFFERING REVERSE MORTGAGES

Here is a partial list of loan companies that offer reverse mortgages in California. Although the first two offer only FHA-insured reverse mortgages and have stopped accepting loan applications, they may eventually get government authorization to offer more of the loans. The other two companies on the list are still making reverse mortgages, but they aren’t insured by the government.

Beverly Hills Securities Co., (818) 906-0700.

Directors Mortgage Loan Corp., (714) 784-4830.

Providential Home Income Plan, (415) 956-2700.

American Homestead Mortgage Corp., (800) 233-4762.