Bank of New York sees huge growth opportunities in the reverse mortgage market.

Its BNY Mortgage Co. intends to originate close to $50 million of such loans this year, up from $30 million last year and $20 million in 1996, according to Patrick McEnerney, president of the unit.

BNY wants licenses to sell reverse mortgages in states other than New York, New Jersey, and Connecticut, where it now sells them.

Bank of New York is one of an increasing number of lenders-and the most active among banks-in the reverse mortgage market as growth slows in the first-home mortgage market. Reverse mortgages allow retired, cash-strapped senior citizens to tap the equity from their homes to pay their living expenses.

Typically, an elderly homeowner pledges his or her house as collateral for the loan. The cash can be paid out in a lump sum, a monthly check, or a credit line. When the homeowner moves or dies, the loan is repaid-typically by sale of the house.

One strong incentive for banks to get into the business is that it provides an alternative means to meet Community Reinvestment Act requirements, Mr. McEnerney said.

As competition for first mortgages to low- and moderate-income borrowers has intensified, that market has become "very efficient and price- competitive."

"In reverse mortgages there aren't the competitive pressures that CRA has driven into first mortgages. There's no need to deeply discount these loans," he said.

Banks can also use the product to build their core deposits, added Michael Hyman, senior vice president at Wendover Financial Services Corp., the country's largest wholesale lender and servicer of reverse mortgages. "If the homeowner chooses, we can direct-deposit (payments) into their bank account."

BNY foresees applications of reverse mortgage lending beyond the current target audience of cash-poor, house-rich senior citizens.

For example, senior citizens who are not strapped for cash but have estates of $600,000 or more tied up as equity in their homes may worry that their heirs will have to pay huge taxes.

By taking out a reverse mortgage, these seniors can "gift out" the equity to their heirs in increments not subject to taxation, Mr. McEnerney said.

Currently, seniors who use reverse mortgages for that purpose represent only a "tiny segment of the market," he added. But "awareness is growing among lawyers and accountants."

Another potential target consumer, Mr. McEnerney said, is middle-aged couples with children whom they are planning to send to college. Such families may see their expenses exceed their incomes.

They could take out a traditional loan, but that would require regular payments. What they really need is something that will supplement their income, Mr. McEnerney said.

Therefore, it would make sense to allow such families access to reverse mortgages, which provide a steady stream of cash with no repayment required as long as they occupy the house, he said.

That would require regulatory changes. Currently, the FHA program and Fannie Mae only allow reverse mortgages to be made to people 62 years of age or older.

Even as it is currently defined, the potential market for reverse mortgages is "tremendous," McEnerney said. There is over half a trillion dollars of available equity tied up in seniors' homes, he estimated.

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