Reverse mortgages give elderly with homes a cash reserve. Federal program will insure loans to be paid back when house is sold

A decade-old idea for putting more money in the pockets of older Americans may finally be catching on. It's the concept of a reverse mortgage, in which banks and other financial institutions pay money to homeowners each month, instead of the other way around: As security, banks use the equity that homeowners have in their houses.

Reverse mortgages have been around for more than a decade, but until now only about 2,000 have been issued, although elderly Americans have hundreds of millions of dollars of equity in their houses. Now the pace appears to be quickening.

``The industry is beginning a little boomlet,'' says housing consultant Bronwyn Belling, a booster of reverse mortgages.

Two states - Maryland and Virginia - are about to provide a kind of reverse mortgage to residents. Those who qualify could borrow funds as needed, up to a maximum amount.

The Capitol Holding Corporation of Louisville, Ky., a life insurance company, is scheduled to begin a reverse-mortgage program ``in a matter of weeks,'' says Capitol's Bill Phillips. The plan would provide either a monthly income for the life of a homeowner, or a line of credit; no repayment would be required until the house was sold.

The Suncoast Schools Federal Credit Union, in Tampa, Fla., also expects to offer a reverse-mortgage program soon, says Suncoast's Thomas Walker. The aim: to ``supplement income for our retirees.''

The biggest boost may come from a small new federal program, expected to be fully operational next spring. Now being drawn up, it would insure up to 2,500 reverse mortgages that banks and other institutions make to elderly Americans to help those ``who are house-rich and cash-poor,'' says Judith V. May, policy-analysis officer of the US Department of Housing and Urban Development.

If successful, the federal program could remove the biggest stumbling block over the past decade to the growth of reverse mortgages: the lack of insurance. Banks like to sell many of the mortgages they make to other institutions; however, without insurance they have been unable to sell reverse mortgages, inasmuch as they have a relatively short track record. Other institutions are concerned that for one reason or another they might be unable to collect on the loans. Without insurance, banks and other lenders are forced to hold onto the mortgages themselves.

``We think that insurance ... might be very important in breaking a logjam'' that prevents larger numbers of reverse mortgages from being written, says Maurice Weinrobe, a Clark University economist.

Attendance at a recent conference on reverse mortgages illustrates that a small but increasing number of lenders appear more willing to consider making such loans now. Sponsored by the American Association of Retired Persons, a vigorous advocate for the concept, it attracted representatives of some 30 lending institutions. By contrast, only one lender attended a similar conference 3 years ago.

Nevertheless experts warn that reverse mortgages are not a panacea. They would be appropriate for only a few of America's elderly, primarily those in the middle and upper-middle income brackets, warns W.G. Kirchner, chairman of the Richfield Bank & Trust Co., of Richfield, Minn. He says that other solutions are required for those who are less affluent.

Nevertheless, Mr. Kirchner, who made his first reverse-mortgage loan in 1979, is optimistic that many more such mortgages are likely to be made before long. A relatively few people were ``plodding along on this thing'' for years, he says. Now interest and acceptance have grown, and the federal demonstration insurance program is about to begin. The concept of reverse mortgages, he says, now is ``a flower about to burst into bloom.''