Corpus Christi Caller Times Caller.com - Reverse mortgage amendment goes before voters

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Tuesday, October 12, 1999

Reverse mortgage amendment goes before voters
Seniors could borrow against home equity to supplement income
By Andrea Jares
Caller-Times

   Seniors who have paid on their house for years could soon have the option of borrowing against that investment for their remaining years.
   Texans will decide the issue at the polls on Nov. 2.
   The proposed constitutional amendment would make Texas, the state with the fourth-largest population of senior citizens, the last state in the country to allow reverse mortgages.
   If Senate Joint Resolution 2 is approved, homeowners age 62 or older will be able to borrow against the equity in their home for additional monthly income as early as Nov. 18.
   In 1997, when Texas became the last state to approve home equity loans, voters also approved the concept of the reverse mortgage. But they weren't possible then because the federal Department of Housing and Urban Development would not insure reverse mortgages that didn't jibe with federal age requirements.
   With a reverse mortgage, a homeowner takes out a loan against the equity in the house. The owner can receive a lump sum, the sum divided over a specific period of time or monthly payments for the rest of the borrower's life.
   When the last surviving borrower dies or moves out of the house, the reverse mortgage company claims the title and sells the house to repay the loan.
   The amount a homeowner can borrow depends on the borrower's age, equity in the house and the prime interest rate. The monthly payments cannot be stopped once a person has run out of equity, so a borrowercould borrow for more than the house is worth.
   The loan is not passed onto heirs. So if an $80,000 loan only yields a $50,000 sale price at the end, the bank loses $30,000.
   The Texas Association of Realtors, Texas Bankers Association and the newly formed Texas Association of Reverse Mortgage Lenders are all strong supporters of the bill.
   It is important that potential borrowers learn all they can about reverse mortgages before they use their house as collateral on a loan, said Kim Womack of the Consumer Credit Counseling Service of South Texas.
   AARP hesitation
   Nationwide, the American Association of Retired Persons has embraced reverse mortgages. But in Texas, AARP's enthusiasm is more tepid since the Legislature removed the provision that would have allowed borrowers to use the equity in their home as a line of credit. A line of credit would have let borrowers defer interest on the loan until they actually use the money.
   "We are left with a no-position position," said Mary Lee Comer, chairwoman of AARP's state legislative committee. "We're conflicted. Maybe this is a good thing, but we're hoping for something better."
   The profile of the person most likely to use a reverse mortgage is a woman in her 70s who has lived in her house for several decades, Comer said. The woman will have a house valued at more than $100,000 and have most of it paid off. She will need the loan to supplement her annual income of $10,000.
   "She often wants enough money to make modifications to her house in order to sell it," Comer said.
   Educating voters
   Scott Norman, executive director of the state reverse mortgage lenders' association, said he is "confident" that the amendment will pass on Nov. 2. He said a key component to selling voters on reverse mortgages is educating them about the concept.
   He said the largest misconceptions revolve around the circumstances in which a lender can take a house. He said the proposed amendment has many consumer protections, just like the amendment that created home equity loans for consumers.
   The house can be taken if a person does not pay their property taxes or homeowner's insurance. A judge has to approve the foreclosure before it goes into effect.
   Also, counseling is required by a third party when a homeowner is deciding to take out a reverse mortgage.



Staff writer Andrea Jares can be reached at 886-3678 or by e-mail at jaresa@caller.com

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