Home equity and reverse mortgages were added to the Texas constitution in 1997.  The lists of consumer safeguards were extensive. The Texas version conflicted with the rest of the United States. The Federal Housing Administration took issue with the changes and refused to insure these loans. With that, Fannie Mae would not make a market for these Texas home loans.  As a result, very few reverse mortgages were originated in Texas until 1999.

On November 2, 1999 Texas voters approved the constitutional amendments that allowed Texas seniors (over the age of 62) to obtain a reverse mortgage.  Reverse mortgages allow senior citizens to take out a loan secured by the equity in their home without having to repay the loan until they move or die. 

The possibility of accessing capital that has been trapped is equivalent to finding the proverbial “pot of gold” in one’s backyard.   Seniors are now able to afford the high cost of private medical care and unsubsidized portions of needed medicines. They are able to make repairs and renovations to their homes therein improving living conditions and real estate values. They can set up trusts and lump sum investments for themselves or future generations.  The annuity feature has allowed seniors to add to otherwise low fixed incomes.  The myriad of options seems endless.

With all this, the question becomes why is it that only one half of 1% of the eligible borrower candidates have chosen to take advantage of this incredible financing medium?  The answer lies in the fact that the reverse mortgage concept is not only foreign to many, but is opposite of traditional financing modes.

In a traditional home equity refinance mortgage set up, a borrower would either refinance the balance that is owed or create a second mortgage and would elect to draw up to 80% of the value under Texas law.  The loan would require regularly amortizing monthly mortgage payments which decreases the accrued interest over time.  As such, the borrower would be required to qualify for the new loan, showing stability of income, good credit history, and a host of other loan requirements.

The reverse mortgage is different in that seniors can access between 20% - 35% of their equity (based on the appraised value) depending on their age.  The proceeds can be received as lump sum, monthly annuity or some combination thereof.  The big news is that there is no traditional credit, income, or similar restrictions. The loan is essentially collateral (property) based. 

The mortgage increases over time.  While these prospects may seem somewhat scary, the good news is that the program Vision Mortgage Company, Ltd. offers allows you to never owe more than your home is worth.  Regardless, seniors can rest assured that they will never lose their home for non-payment, as there are no payments to make.

So when is the loan re-paid?  The loan is repaid when the last of the borrower (or co-borrower) either dies or chooses to move out of the home for over 12 months.  At that point the estate or guardian has the task of selling the real estate in order to repay the debt.  The non-recourse nature of this mortgage provides the basis that the Lender can only satisfy their debt with the home and not other assets, regardless of the balance on the loan.