Estimates indicate that there is a target population of some 8.8 
million senior households that both qualify for and are good 
potential candidates for HUD's home equity conversion mortgage 
(HECM) reverse mortgage program. (Under an HECM loan, a lender 
advances money to a elderly homeowner, in the form of a series of 
fixed monthly payments, a line of credit on which the borrower 
may draw, or a combination. The senior homeowner is not required 
to make any payments on the loan so long as he or she remains in 
the house. The lender collects the loan balance—which includes 
the accrued interest and other charges as well as the amounts 
paid out—when the house is sold or the owner dies.) Yet in the 
most recent federal fiscal year, just 43,131 HECM loans were 
originated; over the sixteen year history of the program, a total 
of 162,268 HECMs have originated, representing only a tiny share 
of the potential market.

There are some obvious and tangible factors that help explain 
this low market penetration, most notably the high origination 
fees and closing costs relative to amounts that can be borrowed 
through the program. Less obvious are the intangible 
psychological fears that may prevent senior homeowners from 
stepping into a reverse mortgage. Being aware of these factors 
can help potential borrowers more clearly assess their own 
situation and make a more calculated decision about whether or 
not a reverse mortgage is right for them:

 * Fear of Giving-up a Hard-Earned Goal - Most elderly homeowners 
   have spent their working lives focused on the goal of "paying  
   off the mortgage." Taking out a reverse mortgage is, in  
   essence, a decision to do a complete turnabout and initiate  
   the process of growing a new mortgage. For some seniors, this  
   just doesn't make sense, no matter how rational the decision  
   to trade-in home equity for better living standards in later  
   life may appear to a detached observer.

 * Fear of Being Suckered - HECMs are administered, heavily  
   regulated and insured by federal government agencies (in  
   particular HUD). From the standpoint of protecting innocent  
   borrowers from ruthless lenders, HECMs are about as "safe"  
   a mortgage product as can be imagined. Yet there are true  
   horror stories from the pre-HUD reverse mortgage era about  
   seniors being forced to sell their homes or lose them to  
   foreclosure. Unfortunately, these stories have now become  
   urban legends and still taint the phrase "reverse mortgage".

   A related issue is the ongoing problem of elderly homeowners  
   being contacted by "home repair" companies, annuity  
   salespersons, and other pitch-men promoting the reverse  
   mortgage as the ideal way to pay for their valuable product  
   or service. The tacky nature of this type of solicitation  
   further increase doubts and fears about whether reverse  
   mortgages are truly legitimate.

 * Fear of Financial Complexity - There is no question that  
   reverse mortgages are complex financial tools. Moreover, by  
   their very nature they run counter to many of the golden  
   financial management rules that senior homeowners have  
   strived to abide by over their adult lives - i.e. "reduce  
   debt", "avoid high transaction fees", "grow your home equity", 
   etc. Largely because of the complexity, HUD requires all HECM  
   applicants to participate in counseling sessions to ensure  
   they have full understanding of the reverse mortgage process  
   and the other alternatives that may be available. Yet, while  
   necessary and well-intended, the counseling requirement  
   itself may scare-off some potential applicants who feel that  
   they just won't be capable of digesting all the new  
   information presented.

 * Fear of Not Leaving an Inheritance - For many seniors, the  
   desire to leave an inheritance to children or grandchildren  
   is quite strong - even to the point of accepting a more  
   modest than necessary lifestyle to ensure that an estate  
   survives them. Seniors who have this goal and whose largest  
   asset is their homestead, clearly will perceive that a  
   reverse mortgage runs directly counter to their strong  
   bequest motive.

 * Fear of Sacrificing Future Flexibility - To be a sensible  
   financial decision, a reverse mortgage should equate to a  
   conscious decision by the homeowner to stay put for the long  
   term - minimally 5-7 years and, ideally, for the rest of the  
   homeowners' lives. Obviously, this commitment is especially  
   difficult for the elderly homeowner. Death, long-term illness  
   or incapacity and similar issues weigh heavily on the minds  
   of many seniors and make long-term housing commitments  
   especially stressful.

To a large extent, further growth in the reverse mortgage area 
will depend on the success of efforts to educate the target 
population. Some observers feel that the next generation of 
retirees - i.e. baby boomers - will enter their retirement years 
with a far greater understanding of financial matters and with 
less aversion to indebtedness. This may prove true but the 
reverse mortgage concept is so fundamentally different from what 
people are used to that overcoming the fears of potential 
borrowers will remain a challenge. 

Tim Paul is a financial management executive with more than 
25 years experience.  His websites focus on personal finance 
issues and include http://www.sagetips.com , 
http://www.529rewards.com and, 
http://www.reverse-mortgage-information.org