HUD Seeks to Expand Reverse Mortgage Loans
Four years ago, Prestonia Morgan faced a financial crisis after her husband died of a stroke. Morgan didn’t know whether she and her disabled daughter would be able to remain in their home, because they were losing part of her husband’s pension and other retirement benefits.
Morgan eventually solved her financial problems by taking out a reverse mortgage guaranteed by the Department of Housing and Urban Development’s Federal Housing Administration. With the loan, Morgan receives cash payments that come out of the equity in her Washington home, without having to make current repayments.
“It’s been two years and we’re living comfortably, just as we were before my husband’s death,” said Morgan, 85.
HUD has insured 16,000 reverse mortgages for older Americans who have either paid off their home loans or have only small balances.
The housing agency has asked Congress to make permanent the first national reverse mortgage, known as a home equity conversion mortgage, and to eliminate the limit of 50,000 loans so that many more can be insured. The agency is also seeking funds to publicize the program.
Lenders have been reluctant to market the loan program, now 7 years old, because Congress has extended the FHA pilot program only to 2001, HUD Secretary Henry G. Cisneros said. HUD, which makes money from the mortgage insurance premiums charged, believes more senior citizens can take advantage of the program.
Nearly 80% of Americans 65 and older are homeowners, and there is a total of $1 trillion in equity in their homes. Many of these seniors are facing financial difficulties, however. A survey by the American Assn. of Retired Persons found that 28,200 senior homeowners were facing foreclosures in 1994; nearly 113,000 may be behind on their monthly mortgage payments.
HUD’s reverse-mortgage program “keeps people from moving into nursing homes,” Cisneros said.
The program, targeted to lower-income homeowners, is one of several offered to older people who need or want extra income. A Cornell University study estimates that more than 620,000 low-income elderly homeowners could bring their incomes above the poverty level with reverse mortgages.
The amount a borrower receives is based on his or her age, the loan’s mortgage interest rate and the property’s appraised value. Borrowers can get cash in one of three ways under the program: a lump-sum payment, monthly payments or a line of credit. The loan is paid off when the borrower dies or sells the home.
