Your Mortgage : Reverse Loans Attract Cash-Strapped Seniors

Thousands of senior homeowners facing financial squeezes serious enough to threaten foreclosure could be helped if they--or their lenders, friends or relatives--became aware of a newly available solution: Reversing foreclosures with reverse mortgages.

Research conducted for the American Assn. of Retired Persons (AARP) estimates that home mortgage delinquencies and foreclosures among seniors 65 and older are far more widespread than popularly understood. Extrapolating from industry data, as many as 28,300 mortgages involving homeowners 65 and older may be in foreclosure nationwide, and nearly 113,000 senior homeowners may be delinquent on their mortgage payments.

Kenneth Scholen, head of the nonprofit National Center for Home Equity Conversion and author of the AARP study, cited the example of a Virginia couple in their mid-80s who fell behind on their $600-a-month home loan payments because of unexpectedly high medical costs. Their lender threatened foreclosure if they didn’t come up with cash, fast.

The couple’s situation, according to Scholen, can be found in communities in every state: People in their 60s, 70s and 80s own their homes with little or no debt, but then take out equity lines of credit, equity loans or first mortgages to help pay for bills as their incomes decline. Their debts may not represent a large percentage of the market value of their houses, but they require regular monthly payments that are tougher and tougher to meet.

When such homeowners get hit with a sudden misfortune--a death of one spouse, an illness or the loss of a steady income source--the result can be tragic. They fall behind on their loan payments. After two or three months, they find themselves in a financial hole too deep to dig out of on their own. Their lender, in turn, sees no practical alternative to foreclosure: The borrowers don’t have the money to cure the default, but they do have plenty of equity frozen in their real estate. The only way to unfreeze it to pay off the debt, the lender reasons, is to sell it on the courthouse steps via foreclosure.

Wrong, say Scholen and AARP. There’s now a better alternative in every state and it’s the one used by the Virginia couple: A reverse mortgage--a loan that pays the borrower in a lump sum or periodically, but may require no repayment during the time the senior homeowner remains in the house.

Though commercially available in a few markets since the 1980s, reverse mortgages didn’t go national until the Federal Housing Administration (FHA) began insuring them in large volumes through a network of lenders several years ago. The Federal National Mortgage Assn. (Fannie Mae) is expected to launch its own reverse mortgage program across the country this fall.

The “next step” in the evolution of reverse mortgages, according to Bronwyn Belling, AARP’s top specialist on the subject, is for lenders and senior borrowers to recognize the “ingenious and creative roles (reverse mortgages) can play in keeping people out of foreclosure.” Up until recently, she said, consumers and lenders alike who were familiar with reverse mortgages thought of them primarily in terms of generating supplemental income for seniors.

For example, the 75-year-old owner of a home worth $150,000 could take out an FHA reverse mortgage that pays her up to $1,278 every month for five years. Or a 75-year-old owner of a $200,000 home might qualify for a $50,000 line-of-credit using Transamerica Corp.’s “Home First” reverse mortgage program--and not be required to repay a cent for as long as he lives in the home.

But in a recent, informal poll of two dozen active FHA reverse mortgage lenders, Belling turned up a new phenomenon: Dozens of cases where the reverse loan or credit line was intended solely to prevent an impending foreclosure. The new reverse mortgage, in other words, paid off the existing problem debt in a lump sum and helped supplement the homeowners’ monthly income.

Best yet: Unlike the regular mortgage or home equity loan that required monthly repayments of principal and interest, the new reverse mortgage often required no repayments whatsoever until the borrowers died, moved out or otherwise sold the property.

“There’s an enduring popular myth,” said Scholen, “that elderly homeowners with mortgage delinquencies have no hope. But that’s absolutely incorrect. The new reality is that foreclosures are reversible”--with the timely help of a reverse mortgage.

For information on sources of reverse mortgages in your area, write to the National Center for Home Equity Conversion at 7373 147th St. West, Apple Valley, Minn. 55124. For $1 and a self-addressed, stamped business-size envelope, the center will send you its “Reverse Mortgage Locator” listing all public and private sources in the United States.

Distributed by the Washington Post Writers Group.