History of Reverse Mortgages

In 1961, the first reverse mortgage was granted to Portland, Maine resident Nellie Young, a recent widow struggling to make ends meet. She was graced by the generosity of Nelson Haynes, an employee of Deering Savings and Loan, who created this loan specifically for her. Initially a simple act of kindness, this type of financing revolutionized the mortgage industry by allowing homeowners to remain comfortable in their homes through the utilization of available equity.

It wasn’t until 1977 that Broadview Savings and Loan president Arlo Smith developed and publicly offered the Equi-Pay Loan in Cleveland, OH, and it was another two years before the Wisconsin Department of Development’s Neighborhood Conservation Program developed their own deferred payment loan program.

Reverse Mortgage Program Changes

The 1980s saw many significant changes in the development of the reverse mortgage program. American Homestead in New Jersey granted the first open-ended reverse mortgage and the Connecticut Housing Finance Agency developed the first split-term product in the first half of the decade, allowing consumers to customize their reverse mortgage for the first time.

The Housing and Community Development Act of 1987, which proposed federal insurance for reverse mortgages, was passed by Congress and received President Ronald Reagan’s signature in 1988. Also in that year, the Virginia Housing Development Authority designed the first line-of-credit reverse mortgage. Wrapping up the decade, HUD released the Home Equity Conversion Mortgage (HECM) program handbook, and the first federally insured reverse mortgage was closed by James B. Nutter and Company.

Reverse Mortgage Advancements

The turn of the century produced several more advancements, including the first official national reverse mortgage counseling exam, followed by the availability of counseling via telephone. AARP also contributed to reverse mortgage education enhancement through the creation of a web-accessible information source and a printable reverse mortgage guide for consumers.

In 2005, Texas authorized a fully functioning reverse mortgage program, making the state the last in the nation to do so. Within the last couple of years, the Economic Stimulus Act of 2008 has enhanced the reverse mortgage market by allowing an increased FHA reverse mortgage loan limit, currently set at a maximum of $625,500, and by making it unlawful to bundle other financial products into a reverse mortgage transaction. In 2008 the reverse mortgage purchase program was introduced.

It is important to understand that most negativity associated with the reverse mortgage program is due to misinformation stemming from the financing options that initially existed – before the program was monitored by HUD and insured by FHA. The federally insured reverse mortgage today carries much less risk for homeowners and allows senior homeowners to live comfortably in their own homes.