In 1996, Fannie Mae developed its own proprietary Home Keeper® mortgage as a supplement to the federally insured reverse mortgage production, the FHA Home Equity Conversion Mortgage. Home Keeper was developed to address unmet needs that could not be served by the HECM program, such as individuals with higher property values, some condominium owners, and seniors wishing to use a reverse mortgage to purchase a new home.

The Home Keeper mortgage is available in every state to borrowers 62 and older. Eligible home types include owner-occupied single-family homes, condominium units, and units in qualified planned unit developments. Properties held in trust and qualified leasehold properties are also eligible. Cooperative units, however, are not.

The amount of funds available to the borrower is determined by a formula and varies with: (1) the age and number of borrowers at the time of application; (2) the adjusted value of the home; and (3) current interest rates. Home Keeper loans can be larger than HECMs because Fannie Mae's maximum mortgage limit - $322,700 for 2003 - is larger than the FHA maximum mortgage limit.

The consumer may choose to receive the funds from a Home Keeper mortgage as: (1) fixed monthly payments for life (i.e., for as long as the borrower occupies the home as his/her principal residence; (2) a line of credit; or (3) a combination of monthly payments and line of credit.

Home Keeper borrowers are charged an origination fee that may not exceed 2 percent of the adjusted value of the home, whichever is greater), a monthly servicing fee ($15-$30), and other closing costs. Many of these can be financed and included in the mortgage.

The interest rate charged on a Home Keeper mortgage adjusts monthly and is equal to a fixed spread above an index rate - the current weekly average of the one-month secondary market CD rate, which is published by the Federal Reserve. The rate may never rise by more than 12 percentage points above the initial rate; there is no cap on a monthly adjustment other than the lifetime cap.

The Home Keeper for Home Purchase program enables seniors to obtain a Home Keeper mortgage in connection with the purchase of a new home - in a single transaction. The transaction reduces the out-of-pocket cash needed by the consumer to buy a new home, eliminates any new monthly mortgage payment, and helps the consumer keep more of the sales proceeds from their old house - or a larger amount of savings - to use for other purposes.

For example, let's say a 76-year-old senior sells her home for a $75,000 profit and wants to buy a new home costing $115,000. To avoid a mortgage payment on the new house, she would need to pay $115,000 in cash. This means she would have to use the entire $75,000 from the sale of her first home, plus another $40,000 from her savings. If she doesn't have the $40,000, she couldn't buy the new house, unless she qualifies for a new home mortgage, which might be difficult and which in any event would require making monthly mortgage payments again.

Alternatively, the same senior could buy the new home for $115,000 in cash using $60,000 from a new Home Keeper reverse mortgage and $55,000 of the $75,000 in sales proceeds from her old house. This way allows her to keep the remaining $20,000 in savings from the sales proceeds from her old house and make no monthly mortgage payments.

This product might be used, for instance, by older homeowners who want to sell their old home and move near their children or to a warmer climate, or to move into a home that provides greater accessibility