The federal government Monday announced that it is dramatically expanding a pilot program that enables elderly homeowners to meet living expenses or get extra cash by tapping the equity in their house through a so-called reverse mortgage.
Effective immediately, the mortgages are being offered by thousands of lenders authorized to make Federal Housing Administration-insured loans. The loans are available to homeowners at least 62 years old, according to the FHA, a unit of the Department of Housing and Urban Development.
"The expansion of this program is an important milestone for older homeowners," Horace Deets, executive director of the American Assn. of Retired Persons, said in a statement. "Reverse mortgages provide a needed source of cash to meet daily living expenses."
In a reverse mortgage, homeowners who own their property free and clear or have a small remaining loan balance take out a new mortgage. Instead of getting a lump-sum payment, they draw on a line of credit or receive monthly payments. If a homeowner dies or moves, the mortgage loan is repaid by selling the home, or the heirs can keep the home by paying off the loan balance. If the loan amount exceeds the value of the property, the heirs will have to pay only the value of the property.
Fannie Mae, a congressionally chartered company that finances home buying, said it has agreed to spend more than $2 billion to purchase at least 25,000 of the mortgages from participating lenders through September, 1995. Lenders are also free to make the loans without reselling them to Fannie Mae.
Fannie Mae's participation in the reverse mortgage program is part of the corporation's ambitious goal, announced in March, to invest $10 billion over the next several months to invigorate the nation's slumping housing market with programs such as employer-assisted mortgage loans.
Reverse mortgages were first offered in November, 1989, under an experimental program involving 23 lenders.
Those interested in obtaining a reverse mortgage have several options: They may receive a fixed monthly payment for as long as they occupy the home. They may receive a fixed monthly payment for a specified term, such as 10 years. They may set up a line of credit. Or they may combine a line of credit with one of the two fixed-payment options.
"These unique loans mean thousands of house-rich but cash-poor Americans can live at home with long-term financial security," Fannie Mae Chairman James A. Johnson said in a statement.