Reverse Mortgages Answering the Cash Flow Needs of Seniors

Seniors are increasingly using reverse mortgages to finance temporary cash flow needs. As the volume of home purchase originations and refinances continues to decrease, offering reverse mortgages may offer credit unions a way to boost their mortgage business.


More seniors than ever are tapping into the equity in their homes to solve their cash flow problems with a reverse mortgage, a product credit unions can offer.

Over 8,700 federally-insured reverse mortgages were issued in the first four months of 2004, an increase of 76 percent from the same period last year. The annual increase for 2003 over 2002 was 39 percent.

The aging baby boom population is beginning to retire and face rising healthcare and other costs. And, real estate prices are still swelling. So, reverse mortgages look like a growth industry.

How a Reverse Mortgage Works

A reverse mortgage allows a homeowner aged 62 or older to convert part of the equity in his home into tax-free income without having to sell his home, relinquish title or assume a new monthly mortgage payment.

There is no income or credit qualification, or a monthly repayment until the homeowner permanently leaves the home. When the homeowner dies or moves, the house is sold, and the mortgage is repaid from the sales proceeds.

While reverse mortgage loans do not stipulate how the borrower may use the equity, seniors commonly use the funds to cover unexpected house or medical expenses, prepare for the future or enhance their lifestyles, according to National Reverse Mortgage Lenders Association.

Of the three types of reverse mortgages currently available, the FHA-insured Home Equity Conversion Mortgage (HECM) constitutes approximately 95 percent of all funded reverse mortgages. The other two types of reverse mortgages include Fannie Mae's Home Keeper Mortgage and private lender products.

As the volume of purchase originations and refinances continue to trend downward, credit unions may be able to boost their mortgage businesses by offering reverse mortgages to today's growing elderly population.

For the latest information on the potential growth and application of reverse mortgages, read Callahan's Market Update entitled "Reverse Mortgages: An Emerging Solution for the Elderly."




Sept. 6, 2004

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  • Good summary of the topic. I also see ENT FCU is using this product. Very helpful information