A reverse annuity
mortgage (RAM) in which a borrower obtains a loan in the form of monthly
payments over an extended period of time, using his or her property as
collateral. When the loan comes due, the borrower repays both the principal
and interest. A RAM cannot
be arranged until the borrower has paid off the original mortgage.
A federal program,
named the Home Equity Conversion Mortgage Insurance Demonstration, allows
people 62 or older to receive regular payments by borrowing against the
equity in their homes. The
loans are repaid when the house is sold.
The payments are based on life expectancy.
The program is sponsored by the Department of Housing and Urban
Development, the Federal National Mortgage Association, and the Federal
Home Loan Mortgage Corporation.
In 1989 federal mortgage agencies began creating a secondary market
where lenders can sell the loans after they have been originated.
Some lenders have not been overly enthusiastic about the reverse
equity program because of the potential losses.
The program is designed for homeowners who are "house rich and
cash poor." It is estimated
that about 1.7 million elderly people own a home worth at least $50,000
but have annual income below $10,000.