Fannie Mae is on a drive to transform a fledgling product-the reverse mortgage-into an offering that senior citizens will clamor for.
The company plans to unveil a loan program today that would enable people 62 and older to buy homes without incurring a monthly mortgage payment or funding the entire purchase with cash. And Fannie-which began buying reverse mortgages last year and expects to spend $500 million on them this year-plans additional products over the next six months.
"We feel very strongly this is an emerging product, and we want to be the industry leader," said Robert Sahadi, Fannie Mae's vice president for housing impact.
The new program offers an alternative to standard reverse mortgages, which were designed to enable people to stay in their homes in old age while tapping the equity.
The new loans-essentially deferred-payment mortgages that require a significant down payment-are geared to a more-mobile slice of the seniors market. Fannie Mae said the program should appeal to people who want to sell their homes to move closer to their children or retire to a milder climate but don't want to use up all the proceeds from the sale.
Fannie Mae expects this year to buy 8,000 to 10,000 reverse mortgages, including the new loans, dubbed Home Keeper for Home Purchase, Mr. Sahadi said.
While the reverse mortgage market is still in its infancy-just $1.2 billion of reverse mortgages are now outstanding-Mr. Sahadi said Fannie Mae could be buying $10 billion of these loans annually within five years. Among the possible new products it is developing: reverse mortgages for condominium purchases.
Fannie Mae's efforts to jump-start the reverse mortgage business comes at a time when lenders are finding mainstream borrowers harder to come by. By designing products for the growing seniors market, Fannie Mae says it is filling a gap in the marketplace while helping lenders reap new revenues.
The over-65 population is expected to swell from roughly 32 million today to 40 million by 2010, according to the U.S. Census Bureau. And nearly 80% of senior citizens have their own homes, a crucial component for obtaining a reverse mortgage.
Two million senior citizens move each year, and more would do so if not for funding constraints, Mr. Sahadi said.
"Seniors, like everyone else, want options," said Nelson Locke, president of Value Financial Mortgage Services, Miami. He said that within five years, he expects to be doing three-quarters of his business in reverse mortgages, up from about 40% now. He declined to disclose his origination volume.
But observers said building a following for reverse mortgages won't be easy. The products are difficult to understand and demand has been weak, said James A. Peers, director of financial institutions with Towers Perrin, Chicago.
"Banks haven't been doing a good job of packaging these products and presenting them as beneficial to consumers," he said.
Indeed, reverse mortgages have been around for nearly a decade. But they attracted little notice until last year, when Fannie Mae began buying the loans for its portfolio.
Lenders welcomed the company's support, saying it gives them a way to offer reverse mortgages and quickly get them off their books.
The new loan "will light a fire" with seniors and lenders, said Roger Reynolds, reverse mortgage chief at Norwest Mortgage. The Des Moines unit of Norwest Corp. is now booking about $10 million of reverse mortgages a month, a figure that will grow by at least 15% with the new product, he said.