An octogenarian couple in Iowa has blazed a trail that could lead to significant growth in the market for reverse mortgages.
Such mortgages were designed to allow cash-strapped older people to stay in their homes without having to make monthly payments.
Now, with Fred and Marion Vallier pointing the way, the loans are also becoming available for home purchases as well.
Fannie Mae, which funds reverse mortgages originated by lenders, says the new structure, and variations to come, will make the products much more mainstream. Indeed, Bank of New York already has a reverse mortgage for home purchase in its pipeline.
The Iowa pioneers, Mr. and Mrs. Vallier, received a $93,000 loan last month with a big assist from Norwest Mortgage Inc.
The couple liked the idea of having a reverse mortgage-especially the part about no monthly payments-but their goal was to buy a new home in Ames next door to their son, Fred.
The spacious residence, with a large garden and sunroom, "was the place we wanted all our lives," said Mrs. Vallier.
But the property cost $154,000, about $60,000 more than the couple could get by selling their longtime home, also in Ames. And, because of income restrictions, the Valliers did not qualify for a conventional mortgage.
That's when a local realty agent, Kurt Friedrich, turned to Melody Meier, a loan agent in Norwest's Ames office, asking if some kind of arrangement could be made. Ms. Meier contacted Sharon Golz, a coordinator with a special reverse mortgage unit at Norwest.
After a brainstorming session, the loan agents structured an application-being careful to point out the loan was for a home purchase, not a traditional equity drawdown-and shipped the paperwork to Fannie Mae.
Fannie Mae underwriters reviewed the documents and authorized a $90,000 loan, on the basis of a formula that considered the Valliers' ages-Fred is 89, Marion 86-and the new home's value. In combination with the $60,000 the Valliers received from the sale of their old home, they were able to make the purchase.
The couple did pay about $2,500 more in processing costs, and their 9% variable loan rate is about 200 basis points higher than conventional rates, but they are hardly complaining.
The loan will not have to be paid until after they no longer live in the residence, Mrs. Vallier noted.
"It's a wonderful deal," she said.