Why These Mortgages Fail to Catch On by Pamela Reeves
Scripps Howard News Service
Do you know anyone who has a reverse mortgage?
If not, don't be surprised. In the 23 years since these loans first became available in limited numbers, only 60,000 reverse mortgages have been issued.
Last month the Center for Retirement Research at Boston College issued a report on reverse mortgages that concluded the main reason the number is so small is "a lack of interest from homeowners."
Most people now understand what a reverse mortgage is. If you are 62 or older and own a house, you can apply for a mortgage loan that requires the lender to pay you, either in monthly installments, a line of credit or a lump sum. The homeowner makes no payments. The lender gets his money, plus interest, when the homeowner dies or the house is sold.
The lender cannot sell the house until the homeowner is ready to leave, even if that means the lender loses money.
Here are some of the other findings from the Center for Retirement:
- In a potential market of 14.5 million homeowners age 62 and over who own their homes free and clear, fewer than 1 percent have a reverse mortgage.
- Contrary to a widely held belief, "the lender does not receive the house as repayment. The loan can be repaid with any available source of funds, which may include proceeds from the sale of the house."
- The number of lenders offering reverse mortgages grew rapidly until 1997, "but then declined from a peak of 195 to an estimated 174 in 1999 as many financial institutions found reverse mortgages to be unprofitable."
The authors found that many elderly homeowners are unwilling to take on debt of any kind, especially by mortgaging a house that they have spent a lifetime paying off. The report also found that buyers thought reverse mortgages were mostly for the poor. "A focus group of borrowers said that they felt reverse mortgages involved a stigma suggesting dire financial circumstances."
This observation doesn't seem to be entirely wrong, either. The authors said lenders fear that elderly homeowners will let their properties fall into disrepair and thus reduce the value "since many (reverse mortgage) applicants are very old and poor."
"In the end," the report said, "the lack of interest in reverse mortgages may come down to a simple preference to hold onto one's major possessions and preserve a legacy for one's heirs."
Most of the reverse mortgages so far--about 50,000--have been issued by lenders insured with the U.S. Department of Housing and Urban Development. The other 10,000 have been made through other lenders, many of them using the HomeKeeper program run by the big mortgage security firm Fannie Mae.
(Reach Pamela Reeves at reevesp@shns.com or visit Scripps Howard News Service.)
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