Financial crisis hits reverse mortgages hard

An industry at the crossroads

Editor's note: This is the first of a five-part series. A reverse mortgage is a secured loan to an elderly homeowner on which the borrower's debt rises over time, but which need not be repaid until the borrower dies, sells the house or moves out permanently. The "forward" mortgages that are used to purchase homes build equity, which is calculated as the value of the home less the mortgage balance. Borrowers pay down the balance over time. Reverse mortgages, in contrast, reduce equity because loan balances rise over time. The reverse mortgage meets the needs of elderly homeowners who don't have enough income to do what they want to do, and who have no qualms about not passing a debt-free house to their heirs. Reverse mortgages before 1988 The history of reverse mortgage programs goes back to the 1970s, but none of the early ventures lasted, and none provided a model for others to follow. Despite the need, reverse mortgages were a hard sell because the instruments...