A federally sponsored mortgage program designed to help seniors get cash out of their houses without having to move or give up title is finally starting to catch on after 10 years in the doldrums.
Reverse mortgages allow homeowners over the age of 62 to tap the equity they have in their homes and use the money to live on, pay off debts, remodel, help their kids or get rid of mortgage payments.
They do not need to meet income or credit standards to qualify.
"Your house becomes something like a real estate annuity," said Joe Williams, president of Jacksonville-based Marine National Bank, which offers the program.
In a regular mortgage, the borrower gets a big amount and pays it off over a set period, usually 15 or 30 years. In a reverse mortgage, the borrower also gets the money, but payment is deferred until death or the house is sold, and the debt is paid from the equity in the house.
Home equity loans also allow homeowners to tap into their equity, but these, unlike reverse mortgages, require borrowers to meet both income and credit standards and involve monthly repayment schedules.
Nevertheless, reverse mortgages have been slow to catch on.
"The biggest misconception that people have is that they think they are trading their house to the lender in exchange for money -- and they are not," said Kevin Recker, who specializes in reverse mortgages for Alliance Mortgage Company, a Jacksonville lender.
Homeowners stay on title by themselves. When they die, title transfers to their estate, not to the lender. Their estate pays off the loan. The loan also has to be paid off if the homeowner while alive decides to sell the home, said Recker.
But "most people are scared, especially older folks who lived through the Depression," he said.
Also not helping interest in reverse mortgages is that some banks have found the fees too low and the paperwork involved too time consuming to make them attractive products to push.
And memories of sleazy practices by loan brokers and private lenders in the early 1990s have not helped either.
"There were people charging exorbitant fees -- sometimes $2,000," said John Warren, a reverse mortgage specialist with America's Senior Financial Services Inc. in Jacksonville.
But Warren and other specialists are seeing more interest these days as the holes that allowed abuses have been plugged up and lenders have a better grasp of how to market the product.
"I kind of have people lined up now," said Molly Johnson of the Catholic Charities Bureau, who conducts HUD-required counseling before homeowners sign up for reverse mortgages.
"It's all I do now," said Paula Wright, who has specialized in reverse mortgage for Allied Mortgage Capital Corp. for about three years now.
The federally sponsored mortgage program is backed by the U.S. Department of Housing and Urban Development and is called the "Home Equity Conversion Mortgage," or HECM. A related HUD-backed product called "Homekeeper" is offered by Fannie Mae, the largest source of mortgage funds in the United States.
The HUD program has a lot of fans.
"This is really a neat product, and interestingly enough the product is not just for people who may have difficulty securing a source of retirement income. People are actually using this as a planning tool to include as part of their retirement income," said Dawn Lockhart, director of Consumer Credit Counseling Services and Family Counseling Services of Jacksonville, which conducts the reviews and counseling required before either the HUD and Fannie Mae reverse mortgage agreements can be signed.
HUD and Fannie Mae stipulate that all reverse mortgages they sponsor first be scrutinized by a third party that HUD has certified.
In Jacksonville, Lockhart's organization -- not to be confused with Credit Counseling Centers of America -- along with the Jacksonville Urban League and Catholic Charities are the only Jacksonville organizations certified by HUD to scrutinize the terms of reverse mortgages. …