It’s only a littlesuburban ranch house, barely changed over its 40 years. But it’s the house where Lauretta Zeh lived for decades – and where she built memories with her husband, who died in 2005.
“It’s my wish to die here,” says Zeh, who lives in Racine County.
Zeh needed a few thousand dollars to modify her home so she could continue to live there independently. Her wish list included a new first-floor washer and dryer (so her aging knees could avoid the climb from the basement), a fresh coat of paint, new carpeting and easier-care plantings in the yard.
It was the house itself that yielded the funds: Zeh drew on her equity with a reverse mortgage. Reverse mortgages convert a homeowner’s equity into cash, paid out monthly or in a lump sum. The loan is paid back when the house is sold.
Reverse mortgages are available only to senior citizens ages 62 and older. They’re best for those who have little or no debt on their houses, and they’re heavily regulated by the Department of Housing and Urban Development (HUD). And contrary to what you might assume, given today’s flat-to-shrinking home values, they’re more popular than ever.
Local lenders report both inquiries and volume are up. Linda Marzocco, a reverse mortgage specialist with Waukesha-based wholesale lender ComCor, wrote 86 reverse mortgages in 2007, a 30 percent increase over 2006. When the numbers are tallied, she expects 2008 volume to jump another 10 percent.
By last October, the end of the 2008 federal fiscal year, 1,091 older Wisconsinites had taken out reverse mortgages. That’s a 131 percent increase from the 473 in-state seniors who did so in 2006, according to HUD.
What is Grandma thinking? That she doesn’t want to move, and that the kids won’t get much from the house anyway.
The latest crop of property tax bills generally reflected the tail end of the real estate balloon, resulting in high bills. Meanwhile, the 2008 stock market bust depressed yields, translating into less income for investment-dependent seniors. In short, seniors have less cash, but it costs more to own their home.
Still, with property values declining, isn’t it a bad time to cash in on the house? Fortunately for seniors, HUD lending assumptions ignore recent real estate trends. The agency still assumes homes appreciate 4 percent annually. (HUD regulations prevent owners from borrowing more than the value of the house.)
It doesn’t matter if home values are stalled right now, says Marzocco, because loans are calculated to pay homeowners over the long haul, giving the market time to rebound. And seniors don’t care, either. HUD regulations prevent lenders from evicting a homeowner even if the house is completely tapped out. This means any senior whose name is on the title has a home until he or she dies.
Eviction is precisely what some elderly homeowners want to avoid, says Marzocco. “Some people have paid for their houses but are in foreclosure because they don’t have money for property taxes. The reverse mortgage enables them to pay their taxes or homeowner’s insurance.”
In 2007, seniors took out reverse mortgages “because they needed money to do repairs,” says Roxanne Witte, a reverse mortgage counselor with HBC Services Inc., a nonprofit financial counseling service in Waukesha. “Now they realize the income stream will keep them in the home comfortably. They’re just thinking, ‘I get to stay in my home.’ ”
Reverse mortgage counselors say adult children have increasingly ceded expectations of inheriting a valuable property. If the house needs repairs, the kids often can’t or won’t pay for it. And they sure don’t want to sell the house and hope the proceeds cover their parents’ rent.
“My kids have already been told there is no inheritance,” says Zeh. “When the house is sold, the reverse mortgage [gets paid back] first. Whatever money is left will go to charity and my church. The kids’ attitude is, ‘Enjoy your life in the house. Don’t worry about us.’ ”
