With the housing boom gone bust, lenders are now peddling reverse mortgages to cash-hungry boomers who don't want to sell in the storm.
Deal-hungry mortgage lenders are targeting aging baby boomers to fuel a spike in reverse mortgages that topped all of 2007's deals in just the first four months of this year.
Between January and April, 198 people with incomes over $200,000 took out reverse mortgages-a loan against a home that does not have to be repaid while the borrower lives there-compared to just 164 for all of 2007, according to the Department of Housing and Urban Development. Borrowers must be 62 or older, and have equity in their homes.
Some are like John Thompson, C.E.O. of Horizon Resources Group in Atlanta, a consultancy, and his university administrator wife, Dr. Patricia Sager. Using proceeds from a reverse mortgage on their primary residence as a line of credit, Thompson says he wants "to provide for unforeseen emergencies and opportunities," while expanding his company into England.
But with the credit crunch continuing, leveraged-to-the-hilt homeowners are seeking ways to raise cash without selling their houses during a slump.
Meantime, beleaguered banks are looking eagerly to the market for reverse mortgages to offset the refinancing business, which went from a cash cow to a dead horse in the past year. They are gearing the same marketing tactics that goosed refinances two years ago to reverse mortgages today.
At Wells Fargo locations, banners are enticing homeowners to try the reverses, and last year the financial giant's home mortgage division did 23,137 reverses out of the total U.S. industry volume of 107,558 deals.
The bank and its rivals see big growth potential. "Fewer than 1 percent of the total senior population in the U.S. that's eligible for a reverse mortgage has used one," says Jeff Taylor, vice president and head of the reverse mortgage division. "So there's lots of room for growth."
Now embattled lenders such as Bank of America, Countrywide and Financial Freedom are offering jumbo reverse mortgages with ceilings higher than the $200,000 to $362,000 on federally insured reverse mortgages, called Home Equity Conversion Mortgages, or H.E.C.M.'s.
There's even a move afoot to offer one national loan limit of $550,000 on reverses.
The appeal is multifaceted. With houses lingering on the market for more than a year, many homeowners aren't willing to wait to sell until prices bounce back and are looking at reverse mortgages as an interim solution, allowing them time to hold onto their homes until home values adjust.
"I have clients who say, we'll continue to live here as long as we want on their dime-it's better than selling our house for a fire-sale price," says Gala Gorman, a financial planner and licensed Realtor with Five Points Financial in Nashville.
The small print: If you use all the money in your house now, what happens if you need that money for long-term care somewhere down the road, asks Jon Beyrer, a financial planner in Solana Beach, California, who says he'd rather suggest other, less expensive ways to finance.
Even AARP's website has a section dedicated to educating its members about reverse mortgages.
As Thompson said of his family's reverse mortgage, "I first made sure that in the worst-case situation, there's money to pay off the loan. The way I see it, our planning actually has given us a major piece of security by reusing our equity."