Reverse Mortgages

If you're at retirement age and worried about how you'll pay the bills after the bear market devoured a chunk of your nest egg, you may be sitting on the solution: your home. With a loan called a reverse mortgage, homeowners who are at least 62 years old can tap the equity in their homes to provide monthly income for life.

Their retirement accounts flattened by the sour economy, older homeowners are increasingly turning to so-called reverse mortgages -- the sometimes expensive loans that don't require payments until the borrower sells the home or dies. The Federal Housing Administration insured 11,261 reverse mortgages in March, a jump of 17% from the same month last year.

Imagine a scenario in which, instead of struggling to come up with the money for a mortgage payment that's resetting to a higher level, you could tap the unused equity in your home not only to pay off that loan but also to have money for living expenses, remodeling, traveling or even investing in a vacation home. For seniors, there is such an option: the reverse mortgage.

Like millions of Americans, Bill and Helen Bluett's greatest financial asset is their home, a Spanish-style dwelling just a quarter of a mile from the ocean in San Clemente. Selling the place and buying a cheaper one elsewhere could have brought the couple hundreds of thousands of dollars in extra money for their retirement years. But there was one problem with that idea. "We love our home," said Bill Bluett, 67, a retired mechanical engineer. "We love our neighborhood.

IndyMac Bancorp Inc., which runs one of Southern California's largest savings and loans, Monday said it was considering an initial public stock offering for a division that provides loans to older homeowners. The unit, Financial Freedom Senior Funding, offers "reverse" mortgages, a kind of home equity loan, to people 62 and older. Pasadena-based IndyMac is the largest U.S. provider of the product. Last year, it had market share of 56% in originations and 53% in loan servicing, the company said.

On Jan. 1, California will usher in a host of new real estate laws. The most notable measures affect borrowers who seek reverse mortgages, homeowners association reserve accounts and landlord requirements for ending leases. Borrowers contemplating a reverse mortgage will get additional protection under Senate Bill 1609.

The safety net is almost gone, the nest egg is cracking. Many Americans have recently found themselves changing their retirement plans after losing a substantial amount of home equity as the housing market and the overall U.S. economy struggle. These folks face years of living on fixed incomes from sources such as pensions, 401(k)s, individual retirement accounts and Social Security but don't have the time to recover their losses.

Being house rich and cash poor didn't bother Bill and Maggie Fletcher until 2001, when Maggie needed to buy a new car. Reluctant to tap their modest retirement savings, the Dana Point retirees began to search for other options. That's when Maggie discovered reverse mortgages -- loans that help older homeowners tap some of their equity without having to worry about repaying the money during their lifetimes. "We are in a situation that millions of people are in," Maggie said.

Prompted by skyrocketing home prices and low interest rates, elderly homeowners in Southern California are among the heaviest users of reverse mortgage loans in the nation, according to the U.S. Department of Housing and Urban Development. Of the 10 HUD offices reporting the highest reverse mortgage volumes, three are in Southern California: Los Angeles topped the list, with Santa Ana second and San Diego fifth. San Francisco was fourth.

Reverse mortgages, which allow elderly homeowners to borrow against their home equity without selling the property, encourage people to remain in older housing that may be unsafe for their diminishing physical abilities, according to Stephen Golant, a University of Florida professor who analyzed 1999 Census data describing the characteristics of the accommodations of more than 17,000 older homeowners.