State-Financed Reverse AnnuityMortgage Loans

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State-Financed Reverse AnnuityMortgage Loans










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(as of Nov. 21, 2006)
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Long-Term Care Task Force
Briefing Paper
Issue: State-Financed Reverse Annuity Mortgage Loans
Description: A reverse annuity mortgage (RAM) is a loan aimed at senior citizens who have paid off their houses but cannot afford to stay there or need extra money for home repair, long-term care, medical treatment, or other purposes. It allows a homeowner to convert into cash some of the equity he has built up in his home. The loan proceeds are tax-free, and there are no minimum income requirements for most private RAMs. The loans are usually paid out to the borrower monthly, instead of in one lump sum, and repaid when the borrower sells the home, moves out, or dies. Two states, Montana and Connecticut, have developed RAMs offering loans to low income seniors.
Montanas Experience: Montanas Reverse Annuity Mortgage Loan was implemented in October 1990 to enable certain low-income elderly Montanans to more substantially provide for their own in-home support by borrowing the equity in their homes and benefit from the additional income. The loan targets persons with low incomes and caps loans at $150,000; Montanans with higher incomes can use a private HECM. Montana grants about 15-20 loans per year and since 1990, they have granted a total of 129 loans, 55 of which have been paid off. Since 1990, the State has paid out approximately $6 million for reverse annuity mortgage loans.
In cooperation with the Office on Aging, the Montana Board of Housing has set aside funds to make reverse annuity mortgage loans. The Montana Board of Housing in the Department of Commerce was authorized by legislation in the 1989 session to establish a state-sponsored Reverse Annuity Mortgage Loan Program (RAM). A reverse annuity mortgage is a loan that allows lower-income elderly Montana citizens to convert the equity in their homes into an additional monthly income sourc