Loans for homeowners over 62 are so in demand that they might exceed federal guarantee limits.
Reverse mortgages have been a boon to older homeowners, as well as the mortgage industry. But the product’s popularity has brought some complications.
Reverse mortgages allow people age 62 and older to draw on the equity in their primary residences, with monthly payments that continue as long as the borrower remains in the home.
People have migrated in record numbers to such loans, according to the Reverse Mortgage Lenders Association, a trade association in Washington.
Borrowers last year took out nearly 86,000 Federal Housing Administration home equity conversion mortgages, the dominant reverse mortgage product, compared with just 48,500 in 2005.
In fact, the loans have grown so popular that they run the risk of outstripping federal limits. As of last week, mortgage industry officials said they feared they would be forced to suspend their federal reverse mortgage programs because the government had agreed to insure only 275,000 such loans — a number that is rapidly being approached.
Peter H. Bell, president of the National Reverse Mortgage Lenders Association, said it was likely that Congress would lift the loan limit, at least temporarily, by the deadline, which is today. “We’re moving along, but I won’t breathe easily until it’s passed,” Bell said.
Bell said lenders were issuing reverse mortgages at a monthly rate of about 8,000, compared with roughly 6,000 a year ago.
“The product is somewhat counterintuitive, and as a result some people are leery about it,” he said.
“But as more people have these loans, more people know someone who has one, which fuels the growth.”
A 62-year-old homeowner in Larchmont, N.Y., with a $240,000 house that has been fully paid off can qualify for a lump-sum payment of $104,000 or monthly tax-free payments of $650 under the federally insured Home Equity Conversion Mortgage.
The monthly payments continue as long as the borrower lives in the house, even if those payments exceed the overall value of the home. In those cases, he or his estate need repay an amount equal only to the home’s value.
Otherwise, the borrower or his estate repays the amount loaned, plus interest.
Payouts are based on a home’s location and value, current interest rates, a borrower’s age, and the amount of equity he or she has in the house.
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