Most senior home owners haven't even heard of reverse mortgages, let alone considered one. But those who have already converted the equity they've built up in their homes over the years into cash apparently are a savvy bunch.

When the government raised the limit on the amount that can be financed by loans backed by the Federal Housing Administration last year -- including Home Equity Conversion Mortgages -- many seniors began asking lenders about refinancing their federally-insured reverse mortgages to get even more money out of their old homesteads.

Unfortunately, they found out that to refinance, they would have to go through the entire origination process all over again. And that stopped many of them right in their tracks.

But here comes Congress to the rescue with legislation that would require lenders to credit borrowers who want to trade in their old reverse loans for new ones with the mortgage insurance premiums they already paid on the original loan. Exactly how much of a reduction they would be allowed would be determined by an actuarial study now underway at the Department of Housing and Urban Development. The current MIP fee, which is paid in advance at closing, is 2 percent of the loan amount.

Actually, the measure, which has already been cleared by the full House and could be folded into the HUD appropriations bill for fiscal 2000, instructs the Department of Housing and Urban Development to streamline the entire refinance process. For example, repeat borrowers would not have to go through the required counseling a second time if their initial reverse loan is less than five years old.

For the uninitiated, reverse mortgages are designed to allow house rich but cash poor senior home owners to tap into their equity without having to sell their homes or even move out. It's called a reverse loan because it works backwards: Instead of you paying the bank back every month, the bank pays you, either every month or in one lump sum.

How much seniors receive is determined by their age, remaining life expectancy and the value of the property. But no matter what you get, or how you choose to receive it, you can't be forced to move out until you are good and ready to leave. Even if you exhaust your equity, you can remain in your home until you pass away or choose to go elsewhere.

Reverse mortgages have been around for sometime. But they're still not terribly popular, probably because most seniors don't understand them. For one thing, they can't seem to get over the fear that they'll have to move when the money runs out. For another, they want to leave their homes to their kids, especially if that's where the children grew up.

But research shows the offspring usually doesn't want the place. To them, their parents' homes often represent a burden. It's not quite the same hardship as taking care of an invalid Mom or Dad, but it's still an ordeal. They'd much rather see the old folks live out their remaining years in comfort, even if it means there will be no inheritance.

Consequently, some lenders are aiming their marketing efforts at the adult children of seniors, not the seniors themselves. In one recent case, Lynda Graves of Marine National Bank in Jacksonville, Fla., says she didn't meet the borrower until closing. The borrower's child took responsibility for explaining the loan and even accompanied the parent to the requisite counseling session.

Of the last six loans closed by Dennis Pigg of Safeway Mortgage in Smyrna, Ga., four came from kids who advised their parents to go ahead. "My guess is that these kids are running out of resources to supplement Mom and Dad's income," the lender said.

Still, only about 8,000 reverse loans will be written this year, and that's a record. The FHA's HECM loan is the most popular because it is somewhat more flexible and less costly than the Home Keeper mortgage, the other principal reverse loan product.

Published: October 11, 1999

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When Lew Sichelman first started writing about housing in 1969, he was the youngest real estate writer in the country. Now, 37 years later, he's one of the oldest -- and most decorated. He has been rated the top housing columnist in the country by the National Association of Realtors as well as by his peers in the National Association of Real Estate Editors. Indeed, NAREE has recognized his work on numerous occasions. One year - due to his advancing age, he can't recall which one - he earned top honors in the annual NAREE Journalism Contest in three out of the four major writing categories. It was the first time one writer has won so many NAREE awards in a single year. Known for his ability to make even the most difficult topics understandable, Sichelman also has been honored by the National Association of Home Builders and the Mortgage Bankers Association. He began providing in-depth coverage of and consumer-oriented information about housing and housing finance at the Washington Daily News, where he was real estate editor. He held that same position for nine more years at the Washington Star, which purchased the News in 1972. The Star, a so-called "writer's newspaper" which also had the misfortune of being an evening paper, was put out of its misery in 1981, and Sichelman, who had begun self-syndicating his column in 1978, decided to become a full-time columnist. Today, his column, "The Housing Scene," is distributed by United Media to newspapers throughout the country. He also is on the staff of National Mortgage News, an independent newspaper which is considered the bible of the mortgage business. And he writes for numerous other publications, including MarketWatch.com, where he answers readers questions once a week, Sports Illustrated (don't ask), RealtyTimes.com, BigBuilder and others. Sichelman is married, the father of five and grandfather of eleven.