New kind of reverse mortgage to be on the November ballot
By Teresa McUsic
On Nov. 8, Texans will vote on a constitutional amendment to allow reverse mortgage lines of credit -- the final piece of the home-equity-lending puzzle that will bring the state in line with the rest of the country.
A reverse mortgage is a loan that enables homeowners 62 or older to borrow against the equity in their home, without having to sell the home, give up the title, or take on a new monthly mortgage payment.
No credit standards need to be met by the borrower, besides an appraisal of the house.
The amendment has passed both chambers of the Legislature and will be on the November ballot.
Reverse mortgages have been legal in Texas since 2000, but the money from the loan can currently be taken out only in a lump sum or a fixed monthly payment.
But a reverse mortgage with a line of credit is part of 88 percent of all reverse mortgages made in the country, said Scott Norman, president of the Texas Association of Reverse Mortgage Lenders.
"With the line of credit, a senior can take out a reverse mortgage and not have to pay interest on it until he or she uses it," Norman said. "We'll be giving seniors an option they never had before in Texas."
With major increases over the past two decades in property taxes, prescription drugs and long-term care, more seniors are taking advantage of reverse mortgages to get the cash to pay for these expenses.
Nationally, reverse mortgages have grown in popularity from 7,781 FHA reverse mortgage loans in 2001 to 37,829 loans in 2004.
Even with the line of credit limitation, Texas has become No. 3 in reverse mortgage lending in the country, Norman said.
Reverse mortgage volume in the state will be approximately 7,500 loans this year but is likely to triple over the next three years if the line of credit option is passed by voters, he said.
The concept has the backing of such entities as AARP, which provides a 68-page consumer guide, "Home Made Money," that can be ordered online or downloaded from www.aarp.org/revmort/, or ordered at (800) 209-8085. AARP also provides free reverse mortgage counseling by telephone.
"We've seen when people get older they may be house-rich but not cash-rich," said Khelan Bhatia, advocacy specialist for AARP in Austin who testified in favor of the constitutional amendment.
"If they want to make improvements on their home, pay for medical costs or support their grandchildren, they can do it with a reverse mortgage."
Proceeds from a reverse mortgage can be used for anything, if the home meets FHA standards. If it doesn't, the house can be repaired with money from a reverse mortgage, said Norman, who also works for Financial Freedom, a division of Lehman Brothers and a leading lender in reverse mortgages with offices in Fort Worth.
Fannie Mae, the nation's largest investor in reverse mortgages, has estimated that almost 400,000 senior homeowners in Texas have enough home equity to qualify for a reverse mortgage. The U.S. Department of Housing and Urban Development insures reverse mortgages, and Fannie Mae buys them from lenders on the secondary market.
The loan amount depends on the borrower's age, current interest rates, and the value and location of the home. A reverse mortgage isn't repaid until the borrower moves out of the home permanently, and the repayment amount cannot exceed the home's value. After the loan is repaid, any remaining equity is distributed to the borrower or borrower's heirs or estate.
A senior's home doesn't have to be owned free and clear to qualify for a reverse mortgage. Also, there is very little upfront cost to setting up a reverse mortgage as fees are limited by HUD and can be rolled into the mortgage. Interest rates are fixed and should be the same no matter which lender is chosen.
For more information on reverse mortgages, contact AARP or the National Reverse Mortgage Lenders Association, which distributes a free information booklet on reverse mortgages, called Just the FAQs: Answers to Common Questions About Reverse Mortgages. Consumers can order it by telephone (866) 264-4466 or at the association's Web site, www.reversemortgage.org.
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Source: Reuters
