History of Reverse Mortgages
By now, most consumers have at least heard of a “reverse mortgage.” That is because these specialized loans have become increasingly popular in recent years. This article is dedicated to not only defining a reverse mortgage, but also providing a brief history how the loan originated in the United States.
Reverse mortgage loans are a special type of loan used to “unlock” the equity in older homeowners’ (ages 62+) homes, allowing seniors to cash in on the equity in their homes without conceding any ownership of the property. The tax-free income generated from the equity in the form of a loan is then available to the senior as a lump sum, fixed monthly payments, a line of credit, or a combination of these payment options.
Reverse mortgages are advantageous to seniors because all loan payments are deferred as long as the property remains the borrower’s primary residence. There is no obligation to repay the loan until the owner dies, the home is sold, or the owner otherwise vacates the property (for example, to move into an assisted-living facility).
History
Haynes of Michigan’s Deering Savings & Loan is credited with offering the first reverse mortgage in the mid-1970s. He extended the loan to the widow of his high school football coach out of a desire to help her cope with her loss as well as her expenses.
In the following years, the Wisconsin Bureau on Aging conducted studies and conferences on a reverse mortgage.
The key figure in these studies is Ken Scholen, who directed some of the studies and published Unlocking Home Equity for the Elderly in 1980. Scholen also directed the National Center for Home Equity Conversion (NCHEC), which was incorporated as independent, non-profit organization in Madison, WI.
HUD became involved in reverse equity mortgages in 1985 when the agency sponsored a conference on home equity conversion. A year later, HUD released studies opposing a federal reverse mortgage insurance plan. Scholen responded by criticizing the study.
Congress passed the FHA reverse mortgage insurance proposal the following year. The first FHA reverse mortgage was made to Marjorie Mason of Fairway, KS in 1989.
The rest of the states eventually adopted reverse mortgage policies, though the Texas government would not pass a fully functioning reverse mortgage program until 2006.
Today reverse equity mortgages are more popular than ever. The number of reverse mortgages taken out last years was about 134,000, nearly twice the number of borrowers from the previous year.
The government issued the new Housing and recovery Act in July 2008, and appointed a division to help prevent seniors from being taken in by unscrupulous lenders.