Reverse Mortgage

A reverse mortgage is a mechanism available to seniors allowing them to stay in their homes, but to withdraw the equity in the home; it is also called a reverse annuity mortgage (RAM). The term “reverse mortgage” has been cited in print since at least 1969 and was suggested by U.S. Senator Edmund Muskie in 1972. The news story “‘Reverse mortgage’ is proposed for elderly” by Martin Merzer of the Associated Press was published in many newspapers in March 1977.
 
The term “reverse annuity mortgage” has been cited in print since at least 1975, when it was discussed before the Senate Subcommittee on Financial Institutions of the Committee on Banking, Housing and Urban Affairs.
 
   
Wikipedia: Reverse mortgage
A reverse mortgage is a form of equity release (or lifetime mortgage). It is a loan available to home owners of retirement age, enabling them to access a portion of their home’s equity. The home owners can draw the mortgage principal in a lump sum, by receiving monthly payments over a specified term or over their (joint) lifetimes, as a revolving line of credit, or some combination thereof.
 
In a conventional mortgage the homeowner makes a monthly amortized payment to the lender; after each payment the equity increases by the amount of the principal included in the payment, and when the mortgage has been paid in full the property is released from the mortgage. In a reverse mortgage, the home owner is under no obligation to make payments, but is free to do so with no pre-payment penalties. The line of credit portion operates like a revolving credit line, so a payment in reduction of a line of credit increases the available credit by the same amount. Interest that accrues is added to the mortgage balance.
 
Title to the property remains in the name of the homeowners, to be disposed of as they wish, encumbered only by the amount owing under the mortgage.
 
U.S. Department of Housing and Urban Development
Frequently Asked Questions about HUD’s Reverse Mortgages
The Home Equity Conversion Mortgage (HECM) is FHA’s reverse mortgage program, which enables you to withdraw some of the equity in your home.  The HECM is a safe plan that can give older Americans greater financial security. Many seniors use it to supplement Social Security, meet unexpected medical expenses, make home improvements and more.  You can receive additional free information about reverse mortgages in general by contacting the National Council on Aging at (800) 510-0301 or downloading their free booklet, “Use Your Home to Stay at Home,” a guide for older homeowners who need help now. It is smart to know more about reverse mortgages, and decide if one is right for you!

1. What is a reverse mortgage?
A reverse mortgage is a special type of home loan that lets you convert a portion of the equity in your home into cash. The equity that you built up over years of making mortgage payments can be paid to you.  However, unlike a traditional home equity loan or second mortgage, HECM borrowers do not have to repay the HECM loan until the borrowers no longer use the home as their principal residence or fail to meet the obligations of the mortgage.  You can also use a HECM to purchase a primary residence if you are able to use cash on hand to pay the difference between the HECM proceeds and the sales price plus closing costs for the property you are purchasing.
 
(Oxford English Dictionary)
reverse mortgage n. N. Amer. Finance a financial agreement whereby a homeowner relinquishes equity in his or her home in exchange for regular payments, esp. to supplement retirement income (cf. equity release n. at equity n. Additions).
1969 J. M. Guttentag in I. Friend Study of Savings & Loan Industry IV. 1542   There are at present no institutional arrangements..whereby an elderly person can use up the equity in his house while reserving the right to live there until his death. The reverse mortgage is one possible solution.
1990 A. Zarembka Urban Housing Crisis i. 21   A relatively recent addition that is aimed at elderly homeowners, is the reverse mortgage.
 
7 April 1972, Naples (FL) Daily News, “Concept of ‘Neighborhood’” by Kevin Phillips, pg. 4A, col. 3:
Muskie’s campaign Task Force on Banking has proposed a “reverse mortgage” plan for senior citizens which would work as follows: Elderly homeowners could sell their homes to a government-owned corporation (SAFE—“Security Assistance for the Elderly, Inc.”), maintain right of residence for the rest of their lives, and receive their payment in the form of annuities considerably supplementing their old-age income.
 
According to a March 21 memo written to Muskie by Dan Lewis, one of the Senator’s legislative aides, roughly 3 million people would be eligible to participate in SAFE.
 
OCLC WorldCat record
Creating a new financial instrument : the case of reverse mortgages
Author: Jack M Guttentag
Publisher: Philadelphia : Rodney L. White Center for Financial Research, University of Pennsylvania, the Wharton School, 1973.
Series: Rodney L. White Center for Financial Research.; Working paper.
Edition/Format:   Book : English
 
Google Books
Electronic Funds Transfer Moratorium Act of 1975 : hearing before the Subcommittee on Financial Institutions of the Committee on Banking, Housing and Urban Affairs, United States Senate, Ninety-Fourth Congress, first session, on S. 245 ... March 14, 1975
By United States. Congress. Senate. Committee on Banking, Housing, and Urban Affairs. Subcommittee on Financial Institutions.
Washington, DC: U.S. Government Printing Office
1975
Pg. 204:
Under a reverse annuity mortgage, the lender would pay the borrower a fixed annuity, based on a percentage of the value of the property. The annuitant would not be required to repay the loan until his demise, at which time the loan would be paid through probate. In effect, a reverse annuity mortgage would enable a retired couple to draw on the equity of their home by increasing their loan balance each month.
 
Google News Archive
8 March 1977, St, Petersburg (FL) Times, pg. 11A, col. 1:
“Reverse mortgage” is proposed for elderly
By MARTIN MERZER
Associated Press
 
OCLC WorldCat record
Re: the reverse mortgage loan.
Author: Illinois Savings and Loan League.
Publisher: Springfield, Ill. : Illinois Savings and Loan League, 1978.
Edition/Format:   Book : English
 
OCLC WorldCat record
An evaluation of the reverse annuity mortgage
Author: Byrl N Boyce; Savings Banks’ Association of Connecticut.; Connecticut Savings and Loan League.; Connecticut Bankers’ Association.
Publisher: Storrs : Center for Real Estate and Urban Economic Studies, School of Business Administration, University of Connecticut, 1978.
Series: Real estate reports, no. 25.
Edition/Format:   Book : State or province government publication : English
 
OCLC WorldCat record
The reverse mortgage loan
Author: Ronald H Timms; James M Mataya
Publisher: [Chicago] : United States League of Savings Associations, 1979.
Edition/Format:   Book : English
 
OCLC WorldCat record
The reverse mortgage advantage : the tax-free, house-rich way to retire wealthy!
Author: Warren Boroson
Publisher: New York : McGraw-Hill, ©2006.
Edition/Format:   Book : English
Summary:
Whether you’re exploring a reverse mortgage to finance a home improvement, pay off a current mortgage, pay for health care expenses, or generate monthly income to improve quality of living, you’re one of the thousands of Americans age 62 and older who are turning to this lucrative way to build income. Simply put, with reverse mortgages you no longer pay the bank, the bank pays you. In The Reverse Mortgage Advantage, renowned real estate expert Warren Boroson presents a thorough examination of the ins and outs of this intriguing investment method. Boroson dispels any myths and puts crystal-clear focus on the pros and cons of reverse mortgages. - Publisher