Texas: Reverse mortgage lines of credit needed
Five years ago this month, Texas voters approved a corrected state constitutional amendment that finally made reverse mortgages available to Texas seniors, nearly a decade after they became common in all other states.
Reverse mortgages are arrangements where people 62 and older can remain in their houses and retain title but draw on their equity for income. The loans aren't repaid until the houses are sold, before or after their deaths.
What passed five years ago was a restricted form of reverse mortgages, however. As of 1999, Texas still banned lines of credit for home equity lending. The ban applied to reverse mortgages, too, because they are a form of home equity lending.
In a surprise move in 2003, the Texas Legislature removed the lines of credit ban for home equity lending. But the constitutional amendment at the time did not extend the action to reverse mortgages.
Supporters who understood how important it was to win passage for equity lines of credit did not want to interrupt the process to add reverse mortgages, so it was left to the next session in 2005.
To celebrate the fifth anniversary of reverse mortgages, the original legislative sponsors prefiled legislation in Austin for action during the 2005 session.
The sponsors are state Sen. John Carona, R-Dallas, and state Rep. Scott Hochberg, D-Houston.
To understand the critical nature of this legislation, it should be pointed out that reverse mortgages with lines of credit are the most popular form across the nation, and that Texas remains a large, untapped market because of the current ban.
Most U.S. seniors with reverse mortgages prefer the lines of credit variation because it's the cheapest form. Seniors can borrow only what they need, preserving the balance as equity.
Texans now are stuck with the two least popular options: a lump sum loan based on the value of their houses or monthly payments based on the amount of equity and life expectancies.
Those two options are more costly because seniors have to guess how much they will need. With lines of credit, the amount of interest is lower because interest accrues only on the amount borrowed.
Although Texas voters approved reverse mortgages five years ago, the first loans were not funded until early 2001. Because it started a decade later than the rest of the nation, Texas now ranks third in the nation in reverse mortgage loan volume.
But that represents only about 6,000 reverse mortgages in effect in Texas right now. It could be much higher with the lines of credit option.
Fannie Mae, the nation's largest investor of reverse mortgages, has estimated that almost 400,000 senior homeowners in Texas have sufficient home equity to qualify for a reverse mortgage.
"For the next two decades, every day in Texas 177 seniors will reach their 65th birthday," noted Scott Norman, president of the Texas Association of Reverse Mortgage Lenders. "Many of them will need a reverse mortgage line of credit."
The legislation filed by Carona and Hochberg already has seven endorsements, including the Texas Mortgage Bankers Association and the Independent Bankers Association of Texas.
The most important endorsement, however, comes from the Texas chapter of the AARP. It is doubtful the Legislature would approve another state constitutional amendment on this issue without the AARP's blessing.
"We believe that a line of credit in reverse mortgages will allow seniors the ability to access their funds only when needed and thereby preserve their equity and curb interest costs," AARP Texas President P. Gus Cardenas wrote in an endorsement letter. "The use of reverse mortgages is likely to grow in coming years, so this proposal is particularly timely."
The Legislature last year crafted a good, consumer-safe measure to add lines of credit to home equity loans. Lawmakers should act quickly next year to put reverse mortgage lines of credit on the ballot in the fall of 2005.
Texas seniors no longer should have their home equity locked up. They should be allowed to have access to that money at reasonable costs, just like the rest of the nation.
Source: David Hendricks, San Antonio Express
