When Did Reverse Mortgages Start? A Look at Their History
Trace the historical development of reverse mortgages, from their conceptual roots to their establishment as a widely available financial option.
Early Origins and Precursors
The concept of leveraging home equity for personal financial needs predates formal reverse mortgage products. Historically, individuals informally arranged to borrow against their property’s value without selling it. These early arrangements, though not structured financial products, converted illiquid home wealth into usable funds.
These informal practices, often private or family agreements, maintained property ownership while deriving financial benefit. These precursors highlight a long-standing human need to access wealth tied up in real estate, especially for older individuals seeking to supplement income or cover expenses. The fundamental idea of using a home as a financial resource, without giving up residence, laid the groundwork for later innovations.
The First Official Reverse Mortgages
The first known official reverse mortgage was granted in 1961 by Nelson Haynes, president of Deering Savings & Loan in Portland, Maine. This pioneering transaction was arranged for Nellie Young, the widow of his high school shop teacher. Mrs. Young needed a way to remain in her home and cover living expenses without selling her property.
Haynes structured a loan allowing Mrs. Young to receive regular payments based on her home equity, with the loan becoming due upon her death or when she moved permanently from the home. This early model demonstrated a formal approach to providing income from home equity, tailored to the specific needs of an elderly homeowner. While innovative, these early offerings remained localized and were not widely available.
Government Backing and Mainstream Adoption
Widespread adoption of reverse mortgages in the United States began with government involvement. Congress passed the Housing and Community Development Act in 1987, authorizing the Federal Housing Administration (FHA) to insure reverse mortgages and creating the Home Equity Conversion Mortgage (HECM) program.
The HECM program, officially launched in 1989, provided a government-insured framework for reverse mortgages, offering protection to both borrowers and lenders. FHA insurance reduced the risk for financial institutions, encouraging more lenders to offer these products. This federal backing helped to establish consumer confidence and integrate reverse mortgages into the broader financial landscape.
The HECM program became the primary reverse mortgage product in the United States, allowing homeowners aged 62 and older to convert a portion of their home equity into cash. Homeowners could receive funds as a lump sum, a line of credit, or through monthly payments, without making regular mortgage payments. The loan generally becomes due and payable when the last surviving borrower leaves the home permanently.
Evolution and Growth
Following the FHA’s HECM program, the reverse mortgage market evolved and expanded. While HECM remains the most common type of reverse mortgage, other options emerged to serve different market segments. These include proprietary reverse mortgages, sometimes called “jumbo” reverse mortgages, which are not government-insured and offered by private lenders.
Proprietary products cater to homeowners with higher home values or different loan terms than the HECM program. The market also saw adjustments to regulations and consumer protections over the decades. These changes aimed to refine the product, address consumer concerns, and adapt to changing economic conditions.