Elderly decision-making about reverse mortgages

Many elderly Americans are "house-rich but cash-poor." They struggle to pay their bills while their houses remain illiquid assets. In 1991, more than 15.7 million or 77 percent of all elderly households owned their own homes, and 82 percent owned them mortgage-free.; In the 1980s, reverse mortgages were introduced to allow older homeowners to extract their home equity without moving. Reverse mortgages have no income restrictions and no repayment requirements until the loans terminate. However, reverse mortgages have fallen far short of early estimates about their potential to reduce elderly poverty. In nine years of a federal demonstration, only 28,000 elderly homeowners took federally-insured reverse mortgages. Seven private companies have introduced reverse mortgage products, but only two are still offered.; The purpose of this research was to better understand how low-income, older homeowners frame their problems and potential solutions and how they make reverse mortgage decisions. The fundamental study questions were: (1) How do low-income, older homeowners view their housing and financial options? (2){A0}How do they reach decisions about reverse mortgages? (3){A0}How do they feel about their decisions afterwards?; The study used qualitative research methods to examine these questions. Open-ended interviews were conducted with elderly homeowners who had considered reverse mortgages and decided whether or not to proceed. The homeowners had received counseling about reverse mortgages and other options through the nonprofit agency Homeowner Options for Massachusetts Elders. Twenty-nine homeowners, two family members and eleven housing counselors were interviewed.; The findings suggest that homeowners tend to use reverse mortgages only as a last resort. Homeowners strongly desired to leave financial legacies and needed considerable family encouragement to take reverse mortgages. Decison-making was a slow process, impeded by the conflict with legacy motives and by misconceptions about the loans. Counselors often enabled homeowners to avoid reverse mortgages by meeting their needs through other mechanisms.; The study conclusions emphasize the need for counseling services throughout the decision process. Policy recommendations include increased funding for counseling, elderly financial literacy programs and affordable housing options for elderly in their own communities.