Reverse mortgages, or HECM loans, are commonly used to help senior citizens tap into their home equity for retirement. But some distressed homeowners are also turning to reverse mortgages to reverse the momentum of looming foreclosures, and save their homes from repossession.
 
Foreclosures are rampant, and investors are scouring neighborhoods in search of distressed homeowners willing to give up their houses in exchange for just enough cold cash to pay off the mortgage. When the homeowner is a senior citizen with most of her net worth tied up in home equity, that kind of arrangement could be particularly tragic. It's tragic when a couple works a lifetime, just to lose it all because they cannot seem to make ends meet long enough to get safely to the other shore of this temporary economic storm plaguing the nation. But for many of these older homeowners, a reverse mortgage is not only a timely life raft, but also a wonderful retirement planning tool.

HECM to the rescue

Anyone facing either an unmanageable mortgage payment or retirement, and everyone confronted by a combination of the two, would be wise to take a closer look at the reverse mortgage or home equity conversion loan (HECM), which is the FHA's name for its own popular version of the reverse mortgage. Those who benefit the most are homeowners meeting the age eligibility requirements:  (1) you have to be at least 62 years old to take out a reverse mortgage, and (2) you should be "cash poor" but have plenty of accumulated home equity. That's because the HECM or reverse mortgage lets you gain access to your entire equity without having to sell your home. For many homeowners who are having trouble making ends meet, a HECM is a perfect solution because it simultaneously generates a vital stream of income while canceling out the existing mortgage payment obligation.

With a HECM or reverse mortgage, the homeowner gets to convert a portion of her home's equity into cash that's paid back to her by the mortgage company. Payments can be made several ways:  in a lump sum, through scheduled monthly payments, via a line of credit, or a mixture of different payment options. As long as the senior occupies the home, she doesn't have to repay the reverse mortgage. As far as retirement planning goes, the HECM offers one of the best ways to leverage home ownership and equity.

Reverse mortgage solution for foreclosure

For those who face foreclosure due to a shortage of disposable income, it's often a no-brainer that solves the problem, while offering additional perks and benefits. One criterion required for an FHA-backed HECM is that the mortgage balance be low enough that it can be paid off by the funds generated by the HECM. Homeowners who can't meet that standard can still apply for other types of reverse mortgages, as well as a variety of different products that can rescue seniors from foreclosure.  These are typically offered through credit unions, banks, and mortgage companies.