The law creating the Home Equity Conversion Mortgage, offered through HUD, expired Sept. 30, giving lenders a chance to step up marketing of their own products.
Equity conversion mortgages, better known as reverse mortgages, generally allow homeowners 62 years of age or more to borrow money against their home equity, with no need to make repayment until the house is sold or ownership is transferred.
The loan proceeds are often received in monthly payments but can also be paid out on other schedules, including a lump sum.
Targeted toward income-poor but home-rich seniors, reverse mortgages occupy a small but growing market niche. About 25,000 such mortgages exist in the United States, most of which were originated in the last few years, according to Ken Scholen, director of the Center for Home Equity Conversion.
About 13,000 of the mortgages were secured through the Department of Housing and Urban Development's program.
Experts say it's not controversy that is stalling the renewal of the program, but difficulty in passing a large bill through both houses of a slow-moving Congress. The appropriations bill the mortgage program is linked to will be vetoed by the President for reasons not related to the program, according to several sources.
"The program enjoys very broad bipartisan support, it's just a matter of finding a vehicle (to drive it through Congress)," said Don Redfoot, legislative representative for the American Association of Retired Persons.
How long that will take is "anyone's guess," according to one expert.
But strong backing by Rick Lazio, R-N.Y., chairman of the House subcommittee on housing, may ensure that it passes sooner rather than later, Mr. Redfoot says. Rep. Lazio is considering pushing through an extension, according to Mr. Redfoot.
In any case, no one expects the lapse to last much longer than eight weeks.
Right now, that means seniors looking at ways of cashing in on their home equity must consider nongovernment programs. Often, programs through outside lenders offer more options, as well as a way to bypass caps that range from $70,000 to $152,000 including interest.
"We saw a vast portion of the market was not served by the reverse mortgages available," said Dan Farnesi, vice president of Household Senior Services of Wood Dale, Ill. "Customers wanted more flexibility than the monthly payment HUD offered."
Household Senior Services' Ever Yours program offers a credit line available through a checkbook.
Reverse mortgages are also currently available through Transamerica Homefirst Inc., San Francisco, American Federal Bank, and Freedom Home Equity Partners, Irvine, Calif., among others.
Demand for reverse mortgage products is expected to increase substantially in coming years, due to the expanding senior citizen population.
Anticipating this, Fannie Mae will offer reverse mortgages in the future, which may greatly affect the market size of the product.
"I expect to see many more lenders and banks doing reverse mortgages when the Fannie Mae program comes out," says Scholen. "Their program will be more streamlined than the HUD program."
Although the Fannie Mae program was originally expected to begin this year, most experts now anticipate a January 1996 start-up date. The company would not confirm a start date, but did say the program is imminent.