In 1985, the Connecticut Housing Finance Agency offered the first split-term reverse mortgage, which enabled consumers to combine the existing reverse mortgages options in order to better suit their needs. This product also gave homeowners the option to receive monthly disbursements for a specific period of time, rather than simply until the equity ran out; also unlike the Equi-Pay Loan, this reverse mortgage program did not become due at the end of the payment term selected, but rather when the borrower(s) no longer lived in the home. In the same year, the Department of Housing and Urban Development (HUD) became involved in reverse equity mortgages by sponsoring a conference on the topic.
In 1987, The Housing and Community Development Act was revised and authorized federal insurance for up to 2,500 Home Equity Conversion Mortgages (HUD Mortgagee Letter 88-38). Federal insurance of reverse mortgages guarantees the availability of reverse mortgage funds to the borrower and compensates the lender any amount they are not allowed to recoup from the owner if the loan balance exceeds the home\'s value.
President Ronald Reagan signed the Federal Housing Administration (FHA) reverse mortgage insurance legislation on February 5, 1988. This enabled FHA to launch the Home Equity Conversion Mortgage Insurance Demonstration (HUD Mortgagee Letter 88-38), which detailed the intended application of the Housing and Community Development Act of 1974 and was eventually adopted permanently by HUD. In the same year, Fannie Mae announced its intentions to purchase FHA insured reverse mortgages and the Virginia Housing Development Authority designed the first line-of-credit reverse mortgage. This new structure allowed homeowners to access their equity however and whenever they chose, and also allowed equity to be rebuilt and be used again without refinancing.
In 1989, HUD released the Home Equity Conversion Mortgage (HECM) program handbook (HUD Handbook 4235.1 REV-1) and selected fifty lenders at random to issue FHA insured reverse mortgages. The FHA reverse mortgage is a non-recourse loan product, meaning that the lender\'s recovery is limited to the value of collateral securing the loan (in this case, the borrower\'s home). This program also offers numerous consumer safeguards, such as pre-loan financial counseling, and benefits, such as credit line growth, which allows for the credit limit to increase over time. Also in 1989, fourteen FHA reverse mortgage counselor training sessions were conducted in order to ensure adequate counselor availability. Finally, in November of the same year, James B. Nutter & Company closed the first federally insured reverse mortgage for Marjorie Mason of Fairway, Kansas.
In 1991, HUD released new regulations to make reverse mortgage insurance available to all FHA lenders. Peter Mazonas (Homefirst; San Francisco, CA) and Robert Bachman (Home Equity Partners; Irvine, CA) devised the first lifetime reverse mortgage program, which was structured to allow monthly disbursements spanning the life of the homeowner, rather than for a predetermined amount of time. The owner retained title to the property without making any monthly payments for as long as they remained living in the home.