A lender's risk comes in when the value of a home at the time of death or sale is less than the value of the reverse mortgage, West said. In a government-backed reverse mortgage, called a Home Equity Conversion Mortgage, the lender gets all of its money back and the government swallows the difference if there is any, she said.
"Right now, given what's happening in the overall mortgage market, there isn't that appetite on the private side to take on the risk in making that loan without government insurance," Francisco said.
Today, more than 90% of the reverse mortgages offered by lenders across the country are backed by the federal government, said Branson of All Reverse Mortgage Co.
Under the terms of the stimulus package, the limit on such loans has been raised to $625,000 for this year only, up from $363,000. Next year, the amount is expected to fall to $417,000, the same amount as the conforming limit for loans insured by Fannie Mae and Freddie Mac.
The increase in the government-insured reverse mortgages is "much more meaningful for people, especially in California and Arizona, where a lot of the home values used to be way over what the HECM limit was," Francisco said.
Seniors are using the money from the loans to pay for basic living expenses, West said.
"People are looking at [reverse mortgages] to live now, which wasn't the case that long ago," she said. "A lot of the time, they're seniors that have mortgages that they shouldn't have been put into -- and have lost their livelihoods in the process."
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nathan.olivarezgiles @latimes.com
