George and Alice Nixon* had never been extravagant people. After forty years of marriage, they considered themselves among the lucky: George had retired from the lawnmower business, and Alice stayed home with their disabled daughter. They had a moderate savings account, and always managed to make ends meet.

So when ends weren’t meeting as easily, George took a reasonable action: as opposed to continuing to eat away at their now dwindling savings, George began working at a local Walmart as a Greeter. This worked fine, except Alice missed seeing her husband, and constantly worried about him driving home late at night. She needed George home, but George knew they needed the income. How could he do both?

George and Alice are like so many other seniors confronting the inevitable questions of how to maintain financial independence in the face of higher costs. In response to this urgent need, the US Department of Housing and Urban Development introduced an innovative mortgage program to be available only to seniors: The Reverse Mortgage.

Introduced in 1988, the Reverse Mortgage has provided hundreds of thousands of seniors with a life raft to overcome increasing costs of living, higher taxes, medical expenses, and other general expenses. The program is simple: help senior homeowners get access to equity in their homes—tax-free—for any purpose, without ever making a payment. That’s it. Seniors are never “kicked out” of their home, and the heirs—not the mortgage company—get the house after they pass away. A significant portion of all reverse mortgages are used to pay off current mortgages; by eliminating the monthly payment, seniors can free up hundreds, even thousands of dollars each month.

The reverse mortgage process consists of five main steps: Qualification, Application, Counseling, Processing, and Closing/Payment.

Qualification for a reverse mortgage is very straight forward. All applicants must be over 62, own their home, and have significant equity. Credit and income are never factors, as seniors are not required to make payments and are therefore not a “risk” to the lender. Likewise, having an existing mortgage is not a deterrent. The proceeds of the reverse mortgage are simply used to pay off that mortgage at closing.

During Application, a Reverse Mortgage Consultant will walk through the specifics of a senior’s situation, including the value of the home, the amount of equity that may be eligible for the mortgage and the applicable closing costs, etc. Standard forms, such as a mortgage application, are filled out. Many mortgage companies will bring these forms to the senior’s home if they are unable to leave.

One of the built in “safety factors” of a reverse mortgage is the requirement that all applicants go through mandatory counseling using an approved and certified counselor. These counselors are independent of any mortgage company, a fact which makes many seniors feel more at ease. Counselors make sure everyone understands the reverse mortgage and how it works; they are also available to answer questions or to clarify any issues that have arisen. The counseling is free, and may even be performed over the telephone if the senior is unable to attend in person. Many seniors have found it helpful to bring family members to this counseling, as well as to any meetings with their mortgage company. Dan Wolbe, Manager of the Reverse Mortgage Division at Unity Mortgage in Atlanta, asserts this is one of the most vital keys to making the process work. “The biggest area of concern is that Mom or Dad are being taken advantage of because this sounds too good to be true. They think there must be a catch,” Wolbe says. “By bringing the children or other trusted advisors in at the beginning to understand the program, we can ease fears that would cause stress years down the line.”

The Processing portion of the reverse mortgage process should be seamless to the senior, as the work is all done by the mortgage company. During this period, all the documents, approvals, and closing materials are collected and compiled to prepare for signature. “The senior should still be aware of what’s going on,” says Cynthia Danzy, Senior Processor for Unity Mortgage. “We try to make sure they know where we’re at; it’s their loan, after all.”

Finally, a closing date will be scheduled. Seniors will meet with a closing attorney, who will explain all the documents and witness the signing. Many attorneys will come to the senior’s home, if requested. At this time the senior will be asked to select a payment plan, or method by which they receive their equity payments. There are four options, though seniors may change or combine any of the selections at any time.

Lump Sum Payment: All proceeds are paid to the senior in one check.

Fixed Payment: The borrower chooses a fixed time period to receive payments.

Tenure Payment: A payment to the senior that is guaranteed for life

Line of Credit: An open line that may be drawn upon at any time by the senior.

So what happens after the reverse mortgage closes? The loan does have to be repaid, right? The answer is yes, though not any time soon. The senior is free to live in the home, payment free, as long as they like. When the senior no longer resides there as a primary residence, either through death or a move to a different location, repayment of the loan is required. Either the senior or the estate must decide to keep the home and pay off the portion of the equity used or sell the home and pay the outstanding balance from the proceeds. If the home is sold, any proceeds above the balance of the loan are the property of the senior or the estate, never the mortgage company. Likewise, if the sale of the home is not sufficient to cover the mortgage, the senior and/or the estate are not held responsible for the difference. In most cases, appreciation of the home and property will greatly exceed the amount of the outstanding balance.

Though reverse mortgages are processed through a mortgage lender or broker, not all reverse mortgages are alike. In the early years of the product, reverse mortgage got a bad name because the mortgage company often owned a portion of the home and received money when the house was sold; they essentially shared in the equity that had been built.

Today’s reverse mortgage bears little to no resemblance to these old-style programs, and provide today’s senior with a much safer way to convert their equity. Private senior consumer groups such as AARP have reviewed the program, and have even published user guides on the subject.

As of December 2005, hundreds of thousands of seniors have taken advantage of the reverse mortgage program, with the number expected to grow rapidly in 2006. Many of these seniors faced financial disaster, but now face a much brighter future thanks to a reverse mortgage. Jim Porter, Reverse Mortgage Consultant with Unity Mortgage, has witnessed the quality of life improvement personally with his clients. “We see this all the time,” Porter says. “Mom and Dad will walk in here with the fear that they will lose their home or have to lean on their kids, and they walk out with the ability to support themselves and live out their lives in their own home. It really is a great feeling to help these people.”

The information is spreading. Suddenly information about the HECM program is readily available from companies like Unity, and seniors all over the country are discovering ways to use their home’s equity for a better quality of life. In fact, it was a letter from Unity that got George thinking about a reverse mortgage. He discovered that he could receive $500 a month for the rest of his life, without affecting his Social Security or Medicare benefits. It was a permanent fix, one that would ensure financial security for him, Alice, and his daughter. He and Alice closed on their reverse mortgage on a Friday morning, and on Friday afternoon he made the drive one last time to Walmart to put in his resignation. He still visits, but now he’s just a customer, and he and Alice return home without worry about what tomorrow will bring.

For more information, please contact Jim Porter at Unity Mortgage, (770) 350-1282; 7840 Roswell Road, Atlanta 30350.