Running rapidly in reverse

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Seniors are queuing up at banks and credit unions around the country to apply for reverse mortgages on their homes.

There has been a “significant uptick” in applications, said Eric Bachman, founder and CEO of Golden Gateway Financial. “Our volumes are double.”

The surge began several months ago. The FHA Modernization Act — which raised the limit on a home equity conversion mortgage to $417,000 — was signed into law July 30, but implementation did not take place until fall.

Meanwhile, President Barack Obama signed into law on Feb. 18 an additional increase in the limit to $625,500, which the Department of Housing and Urban Development made official on Feb. 24, Bachman said. And, effective since Jan. 1, reverse mortgages also can be used to purchase a home.

All of which has contributed to the boom in “one of the few financial products that saw a growth in ’08,” Bachman said.

As seniors assess their financial situation, they now have the option to stay in their homes or downsize to another home. “A reverse mortgage is now a good solution for either one,” he said. “We’re seeing more and more people who don’t have a mortgage to pay off coming in for reverse mortgages — they’re becoming more mainstream now that there’s a critical mass of knowledge.”

But there’s a darker side to their increased popularity.

“Seniors have seen their savings decimated,” Bachman said. “Their portfolios are down, and they don’t want to sell while they’re at bottom — so they’re looking for liquidity to help them through this tough time.”

And, fortunately, the qualifications for a reverse mortgage are simple and straightforward.

According to HUD’s Web site, homeowners “must be age 62 or older, own the property outright or have a small mortgage balance, occupy the property as a principal residence, not be delinquent on any federal debt, and must participate in a consumer information session given by an approved HECM counselor.”

Jon Paukovich, vice president of mortgage lending at Ent Federal Credit Union, said Ent’s reverse mortgage volume has increased about one-third during the first quarter of this year. And attendance at an Ent reverse mortgage seminar on Feb. 21 was by far the largest they’ve had since offering the seminar.

“As the stock market has taken a tumble,” Paukovich said, “seniors cannot draw as much (as they need) from their 401(k)s for retirement income.”

Even seniors who cannot take much cash from the reverse mortgage still benefit by eliminating their mortgage payment.

Having a reverse mortgage “allows many seniors to be able to live off their retirement income,” Paukovich said.

During 2000, fewer than 20,000 reverse mortgages were financed nationally. By 2008, that number had jumped to 120,000, and Bachman said he would not be at all surprised to see 200,000 by the end of this year.

“By mortgage standards, it’s small,” Bachman said, “but by growth rate — it’s a real trend.”