.bodytext {float: left; } .floatimg-left-hort { float:left; margin-top:10px; margin-right: 10px; width:300px; clear:left;} .floatimg-left-caption-hort { float:left; margin-bottom:10px; width:300px; margin-right:10px; clear:left;} .floatimg-left-vert { float:left; margin-top:10px; margin-right:15px; width:200px;} .floatimg-left-caption-vert { float:left; margin-right:10px; margin-bottom:10px; font-size: 10px; width:200px;} .floatimg-right-hort { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 300px;} .floatimg-right-caption-hort { float:left; margin-right:10px; margin-bottom:10px; width: 300px; font-size: 10px; } .floatimg-right-vert { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 200px;} .floatimg-right-caption-vert { float:left; margin-right:10px; margin-bottom:10px; width: 200px; font-size: 10px; } .floatimgright-sidebar { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 200px; border-top-style: double; border-top-color: black; border-bottom-style: double; border-bottom-color: black;} .floatimgright-sidebar p { line-height: 115%; text-indent: 10px; } .floatimgright-sidebar h4 { font-variant:small-caps; } .pullquote { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 150px; background: url(http://www.dmbusinessdaily.com/DAILY/editorial/extras/closequote.gif) no-repeat bottom right !important ; line-height: 150%; font-size: 125%; border-top: 1px solid; border-bottom: 1px solid;} .floatvidleft { float:left; margin-bottom:10px; width:325px; margin-right:10px; clear:left;} .floatvidright { float:right; margin-bottom:10px; width:325px; margin-right:10px; clear:left;} For Gloria Sullivan, the prospect of having to move from the house where she’s lived for the past 35 years to an apartment was unthinkable.

“It would be like a prison for me,” the lively 82-year-old Des Moines resident said, as she relaxed in her sunny kitchen overlooking a wraparound redwood deck.

Last year, Sullivan found a way to ensure that she’ll have enough money to stay in her house as long as she’s physically able to: taking out a reverse mortgage.

“I think it gives you peace of mind,” said Sullivan. She opted to pay her annual property tax bill last year off the top of the proceeds from her reverse mortgage, and uses it as a source of money for emergency home repairs as well as to augment her monthly income. “With prices going up every day, it seems like it’s pricing people out of their houses,” she said. “I think this is a great financial planning tool.”

As the nation’s senior population continues to grow – the number of people age 65 or older in the United States is expected to double by 2030 – finding ways to ensure that they won’t outlive their retirement nest eggs has become more critical than ever.

At the same time, wealthy seniors with pricey homes are beginning to use reverse mortgages as part of a strategy to reduce the taxable value of their estates.

At a June 19 symposium on safeguarding homeownership in Washington, D.C., U.S. Housing and Urban Development Secretary Alphonso Jackson said reverse mortgages are “playing a critical role” in helping seniors stay in their homes, and that he has personally recommended the technique to his older siblings.

Congress has expanded the program several times by raising the cap on the number of reverse mortgages that can be guaranteed by the Federal Housing Administration. Now, lawmakers are considering permanently lifting that cap, while at the same time capping the fees that loan originators can charge.

With a reverse mortgage, anyone 62 years or older with free and clear title to their home or a small balance remaining on their mortgage loan can borrow against the value of the house. Unlike a home equity loan, which requires monthly repayments, a reverse mortgage loan doesn’t have to be repaid until the borrower moves, sells the home or dies. It can be received as a lump sum, a line of credit, monthly payments or a combination of these methods.

“The amount of money you can get from a reverse mortgage is largely based on your age,” said Darryl Hicks, vice president of communications for the National Reverse Mortgage Lenders Association. Among the safeguards for the borrower is that the amount owed on the loan cannot exceed the value of the home, even if the home value were to significantly decline or interest rates rise significantly.

“So if you outlive the longevity tables and end up owing more than the value, the heirs won’t be responsible for paying more than the value of the home,” he said. “In most cases the estate will sell the house to repay the loan, and whatever equity is left over will go to the estate. In the case of Iowa, where you have a lot of farms, the farmland value is not taken into consideration at all; it’s just the residence where they live. Not the barn, not the fields or anything like that.”

Borrowers typically pay an origination fee of 2 percent of the home’s value, plus a mortgage insurance premium of 2 percent. They also incur costs similar to those for a regular mortgage loan, including a title search, appraisal and other expenses. Interest rates generally mirror those of home equity loans.

Some caveats, Hicks noted, are that seniors receiving Social Security disability payments could jeopardize their eligibility by receiving income from a reverse mortgage. Also, the interest that accrues over the life of the loan isn’t tax-deductible, unless the borrower makes special provisions to pay the interest annually, which most don’t do. On the plus side, he said, the money is not considered taxable income.

Growth accelerates

Though reverse mortgages were first authorized by Congress 17 years ago, the product hasn’t experienced significant growth until recently, said Jeff Taylor, vice president of the Senior Products Group for Wells Fargo Home Mortgage. The West Des Moines-based subsidiary of Wells Fargo & Co. is the No. 1 reverse mortgage originator in the country, handling approximately one out of every three U.S. reverse mortgages.

In the first eight months of fiscal year 2007 (Oct. 1, 2006, to May 31, 2007), the Federal Housing Administration endorsed 71,500 Home Equity Conversion Mortgage loans, compared with more than 76,000 in all of fiscal 2006. At that pace, Taylor predicts, reverse mortgage production should reach just over 107,000 by Sept. 30, a 40 percent increase over last fiscal year. In the same period through May 31, Iowans had taken out 215 reverse mortgages, compared with 188 in all of fiscal 2006.

“It’s been exhilarating to see the growth in the past two years,” Taylor said in a telephone interview from his office in Greensboro, N.C. As a number of factors have eroded retirees’ savings, seniors and their adult children have become more open to the idea of reverse mortgages, he said.

“The adult children, by far, are the single biggest group of people who are inquiring about the program for their parents or grandparents,” said Taylor, because many seniors are still unaware of the program. He said he advised his mother in Iowa to take out a reverse mortgage 10 years ago after his father passed away. With the proceeds, she was able to pay off her first mortgage and have nearly $300 a month in additional income before moving to an assisted living center, Taylor said.

The most prevalent reverse mortgage product is offered by lenders through the FHA’s federally insured HECM program, which accounts for more than 90 percent of the market.

Using Wells Fargo’s online calculator, an 87-year-old Des Moines resident with a paid-off $200,000 home would have access to $127,000, or 70 percent of the home’s value, through an HECM loan. The entire amount could be borrowed upfront, or be accessible as a line of credit. In most areas of Iowa, the FHA lending limit is $200,160, meaning that’s the most a senior can borrow against his or her equity.

As seniors’ home equity values continue to climb – the National Reverse Mortgage Lenders Association says the average home equity in a senior-owned household is now $230,000 – the number of reverse mortgages will continue to rise, Taylor said. He estimates that one in five eligible homeowners will have taken out a reverse mortgage within the next 10 years.

Rising costs

Art Ousley, director of housing and education for Consumer Credit Counseling Service Inc. in Urbandale, said the number of seniors he counsels prior to taking out a reverse mortgage has increased 72 percent since December. His agency is among the organizations certified by the FHA to provide required third-party counseling to seniors before they enter into a reverse mortgage loan arrangement. In recent months his office has averaged about 120 consultations per month with people from throughout the Midwest.

“By and large, most of the folks I talk to are in some financial difficulty,” Ousley said. “They’re either in the midst of losing their house, or they can no longer afford the mortgage payment, because they don’t have enough money coming in. So the only way they’re going to keep their home and not sell it is through a reverse mortgage.”

The rising costs of prescription drugs, gasoline and other living expenses are frequently mentioned as factors why seniors aren’t making it, he said.

“It’s not like they didn’t plan,” he said. “It’s just that they don’t have enough; they’re running out. They may have Social Security, a pension and investments to draw from, but it’s just not enough.”

A small percentage of people who call are those planning ahead, often with the assistance of their children, Ousley said.

“I even get calls from people who are younger than 62; they do a conference call and do a roundtable,” he said. “However, it’s definitely still a small segment. Part of that is that the word is just getting out about it.”

Estate concerns

Taylor said some Wells Fargo Home Mortgage customers with home values of $500,000 and more have worked with their financial planners to use a reverse mortgage as part of a strategy to reduce their estate’s taxable value.

“They might use a reverse mortgage to pull out as much equity as possible to reduce their estate, and then buy some loan protection to pay off the balance, or establish a living trust,” he said. “These are some of the creative ways we see a new segment of the population using them. I think we’ve moved beyond the desperate category; we’ve now moved into the 80 percent that have said, ‘Someday, but not today.'”

Sullivan said that since taking out her reverse mortgage, she has recommended the process to several of her friends, who have also secured reverse mortgages.

The process of getting the reverse mortgage, which included an appraisal of her house and the independent consultation, “was very simple, very easy,” she said. “Each person I dealt with in the process was very pleasant to deal with. I never felt anyone was looking down on me because I was doing this.”