The history of reverse mortgages is substantially more interesting than many would think. While reverse mortgages have only become popular in the past 15 years, these loans have actually been around for decades. Contrary to what naysayers often say about these loans, their history is teeming with generosity, financial innovation, and positive advancement.
The Early Reverse Mortgage History
Reverse mortgages first got their start in 1961, when financial professional Nelson Haynes of Deering Savings and Loan developed a product to help a woman by the name of Nellie Young. Mrs. Young was the widow of Haynes' high school football coach and had been struggling since her husband's death. To help the widow stay in her home, Haynes created a loan that allowed Young to convert a portion of her home equity into cash. Thanks to the banker's innovation, the reverse mortgage was born.
While Haynes' development was groundbreaking, these loans did not go public until 1977. Sixteen years after the birth of the reverse mortgage, Arlo Smith of Broadview Savings and Loan developed the Equi-Pay Loan. This loan also allowed borrowers to receive a portion of their home equity and defer payment until their home was sold. In 1979, the Wisconsin Department of Development created the Neighborhood Conservation Program. Like the Equi-Pay Loan, this program allowed struggling homeowners to withdraw some of their home equity.
History from 1988 to Today
Fast forward to 1988 when the federal government created the Federal Housing Authority Insurance Program. The federal government chose 50 American lenders who would begin offering government-insured reverse mortgages. The next year marked a milestone in reverse mortgage history. In 1989, the first federally-insured Home Equity Conversion Mortgage (HECM) was issued.
HECMs were so successful that the Federal Housing Administration (FHA) opened the program to all American lenders in 1998. That year, 7,896 were issued to seniors. In the next few years, these loans grew exponentially. In 2007, less than ten years after the birth of the HECM, 107,558 of these loans were given to seniors.
The past few years have been tough for the American economy. To help keep consumers in their homes, the government issued the Economic Stimulus Act of 2008. This law did two important things for HECMs. First, it increased the maximum claim limit from $417,000 to $625,500. Secondly, the Economic Stimulus Act made it illegal for lenders to sell other financial products with HECMs. This significantly cut down on the number of scams and made the industry a safer place for seniors.
Yet, the history of reverse mortgages does not end there. Early 2009 marked the inception of the HECM for Purchase program. This program took HECMs one step further by allowing seniors to purchase a new home with the proceeds of their loan. In October of 2010, the federal government made these loans more affordable by releasing the HECM Saver. This loan works just like the HECM Standard; the main difference being that the Saver slashes costs for seniors who want to borrow smaller amounts.
Reverse mortgage history is defined by constant growth and development. As these loans continue to mature, the industry is sure to experience more positive change and continued success in the future.