Property Rich, Cash Poor
On paper, Ruth Boe, 72, is a wealthy woman. Since she bought her modest six-room house near San Francisco in 1950, its value has surged from $10,500 to $139,000. But interest payments on her savings, plus a monthly $395.50 Social Security check, are not enough to pay for her rising food, utility and repair bills. Desperate and disheartened, Boe feared that if her savings became depleted, she could be forced to sell her home in order to raise enough money to live.
Last month the Crocker National Bank solved Boe's cash problem. The mechanism: a reverse mortgage, meaning in essence a loan against the value of her house. For the next six years, she will receive a monthly payment of $746.50. Then at the end of that period, she can sell the home in order to pay back the money or she may be able to take out an additional loan, provided that her home has continued to increase in value. Says Boe happily: "I urgently needed the money. It's my home, and I love it. I'd have been sick if I had to leave."
The loan was arranged by the San Francisco-area Reverse Annuity Mortgage Program, a pilot project sponsored by the Ford and San Francisco Foundations and the Federal Home Loan Bank Board to help elderly homeowners who are property rich but cash poor. Nearly 60% of Americans 65 or older own their homes, free of mortgage debt. The value of that property is estimated to be some $500 billion.
Consumers are expected to welcome the loans once they become more widely available; at present, though, some are taking a wait-and-see attitude because of high interest rates. Bankers say they support the program's social goals, but they question whether the program will become a real moneymaker. Banks earn very little on the loans in the early years, since their value is rather small. The sponsors, though, hope that banks will learn how to make a profit on the loans and help retired people unlock the wealth stored in their homes.
This file is automatically generated by a robot program, so viewer discretion is required.