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
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."