HECM (Home Equity Converson Mortgage) Growth

The landscape began to change in 1988 with the development of a Federal program under the FHA called the Home Equity Conversion Mortgage (HECM). The borrower protections built into this program, along with the imprimatur of the Federal Government, paved the way toward increasing acceptance by elderly homeowners. The AARP also entered the picture as a major information source (see www.aarp.org/revmort).

HECMs account for about 95% of all reverse mortgages being written today. Other reverse mortgage programs are available from Fannie Mae, and from Financial Freedom Senior Funding Corporation, a subsidiary of Lehman Brothers Bank, FSB. In addition, some limited special purpose programs are available from some states and cities.

Under all the programs cited in the paragraph above, borrowers have the right to live in their house until they sell it, die, or move out permanently, regardless of how much their mortgage debt grows. If the debt comes to exceed the value of the property, the FHA or the lender takes the loss. In addition, loans under these programs are without recourse. This means that lenders cannot attach other assets of borrowers or their heirs in the event that the reverse mortgage debt comes to exceed the property value.

Reverse mortgage activity today is at an all-time high. The number of new HECMs jumped from 7,781 in 2001 to 13,048 in 2002. Still, this is a drop in the bucket when compared to the size of the potential market. Increasing numbers of seniors are realizing they can take reverse mortgages safely, but most still haven't gotten the message. The mainstream stills lies ahead.

Source: Loan.Yahoo.com