Okay, sit back and get comfortable, we’re going back in time today for a short history of Reverse Mortgages. When we look back at the early days, it’s easy to understand why there are – even 50 years later – myths and misconceptions about them as they exist today. In the beginning, it was like the Wild West, there were no rules. The industry is hard at work today to assuage the fears of potential borrowers, but old tales die a slow death.
The very first Reverse Mortgage was a one-of-a-kind, custom loan made by Deering Savings & Loan to Nellie Young, the widow of the bank manager’s high school football coach. I seriously doubt that anyone in the banking community paid much attention to this event, so not much else – of substance – happened in this field until the late 1970’s. There were some occasional forays into loans which vaguely resembled a reverse mortgage. There were some papers written, some committees formed, and some studies done on the concept of creating a new financial instrument for the aging. Abuses did occur from time to time – remember, there were no rules.
It wasn’t until Ken Scholen, known as the Godfather of the Reverse Mortgage, saw the value of this product for Seniors, and set out to convince HUD and the U.S. Congress of its efficacy, that anything substantial happened. And, it took much convincing. The Dept. of Housing & Urban Development originally rejected the idea. But, Mr. Scholen persisted, the AARP got on board, and a few members of Congress began to notice. After many hearings, conferences and studies, Congress passed the FHA Reverse Mortgage Insurance Proposal which was signed by President Reagan early in 1988. HUD then began selecting lenders around the country for its pilot program, and started the uniform training and testing of Reverse Mortgage counselors. Thus, in the 1990’s we have the beginnings of what we would recognize as the FHA HECM Reverse Mortgage.
Like any mortgage product that is regulated by the government, the HECM Reverse Mortgage continues to be tweaked, modified, added to and subtracted from. This is a good thing, because it’s being adapted to the needs – and desires – of today’s Seniors as well as the needs of the financial markets. Most importantly, HUD rigidly regulates how the HECM Reverse Mortgage is offered, closed and administered for the safety of all of us.
The Reverse Mortgage Gazette 