The use of reverse mortgages in which seniors tap the equity in their homes is growing rapidly in northern Nevada, and lenders expect the trend will continue even as other types of lending slow.
In part, the growth in reverse mortgages comes as lenders look for ways to take up some of the slack in their business as fewer homebuyers come looking for traditional mortgages.
But they also say the increase in reverse predates this year's slowdown in traditional home lending and appears to reflect a fundamental shift in the way homeowners look at their houses.
In a reverse mortgage, a borrower aged 62 or older borrows the equity in his home without giving up title or taking on a monthly payment. The loan isn't repaid until the homeowner moves out or dies.
The most common type of reverse mortgage, a product insured by the Federal Housing Administration, requires that borrowers sit down with an independent third-party counselor before signing anything.
In Reno, those counselors say they're doing a boom business.
"In the past, we did maybe two a month. Now we do at least two a week," says Heather Traverso, a legal secretary with the Senior Law Project, one of the agencies that provides counseling.
The Reno office of Consumer Credit Affiliates, another counseling agency, has seen a steady upturn over the past 18 months, says Northern Nevada Director Jill Perry.
Why?
For starters, reverse mortgages are better understood by borrowers.
"It's not a quirky scam. It's gaining traction in people's comfort levels," says Monte Rose, west region sales manager for Financial Freedom Holdings Inc., a California-based unit of Indymac Bancorp Inc. and a big player in the business in Nevada.
Rose says his company's business in Nevada retail lending directly to consumers as well as wholesale loans delivered through brokers has doubled in the past year.
Julie Hill, reverse mortgage manager with Wells Fargo in northern Nevada, notes growth in reverse mortgages has been strong for four or five years, and Wells Fargo saw the biggest growth from 2003 to 2004.
The growth, Hill says, reflects the growing number of people old enough to take advantage of the lending programs, the growing amount of equity available to be tapped, and the increased sophistication of homeowners.
Rose adds that more lenders are getting into the business, boosting the amount of advertising and other exposure for reverse mortgages.
Even so, Harry Gordon, the president of Reno-based Lake Tahoe Mortgage, says borrowers often need painstaking education before they're willing to use the tool.
"It flies in the face of what they believe pay off your home and keep it paid off forever," he says. "Our customers tend to be cautious. They recognize that this represents a significant part of their wealth."
Reverse mortgages are particularly useful, he says, to help seniors pay for medical costs or in-home health care.
Lake Tahoe Mortgage uses traditional advertising vehicles such as direct-mail and consumer seminars to get the word to potential borrowers, but also develops relationships with lawyers, financial planners and other professionals.
A key piece of the business, Hill says, is the requirement for third-party counseling.
"We want to make sure the clients really do their homework," she says.
While the graying Baby Boom generation portends a big wave of potential borrowers for reverse-mortgage lenders, the demographic surge presents some challenges as well to the lenders.
A big one, says Rose, is this: Because Baby Boomers have grown accustomed to using their homes as financial assets that can be tapped, they may come into their retirement years with substantially less equity than did their parents. And that may limit their ability to use reverse mortgages.
