According to a recent report on CBS news, 20 million households are about to be upside down on their mortgage. An upside down mortgage is when the home owner owes more on the house than it’s worth. The result of an upside down mortgage is usually that the homeowner takes a loss on the sale. The other choice is for the home to go into foreclosure. But it costs banks around $50,000 to foreclose on house. So many lenders don’t want to bother.

If 20 million is the correct figure, that means 43% of all mortgage holders would be stuck with upside down mortgages. Whether this number is correct. I’m not sure. What I do know is that the panic over current market values is causing prices to be lowered. Some experts have predicted that home prices will fall across the nation by 10%. And, as we’ve previously discussed, many homeowners are reacting to the fear simply walking away from the mortgages that they owe.

Because the market is no longer liquid, homes that still have homeowners living in them are sitting on the market far longer than before. Many homes are for sale on the market for a year or more. Those who are hurt the most by being upside down are:

• people who recently purchased their homes (in the last couple of years)
• people who have suffered a financial blow, like job loss
• people who are going through a divorce or other personal loss

Reverse mortgages are loans that are available to elderly homeowners. The loan amount is based on their age and the amount of equity they have in their home, and doesn’t have to be repaid until the homeowner passes away, moves out, or sells the house.

A reverse mortgage can be dispersed in several ways:

1. A line of credit can be extended, from which the homeowner can draw money as needed.
2. A fixed, monthly amount over a short period of time (5 years, for example).
3. A fixed, monthly amount for the rest their lives (or until they sell the home).
4. One lump sum.

The most popular type of reverse mortgage is FHA.s Home Equity Conversion Mortgage. This loan has the lowest interest rates, but also has the lowest maximum amounts you can borrow against the home’s equity. Maximum amounts vary by state and county, ranging from $200,160 to $362,170.

Fannie Mae also offers a reverse mortgage program called Home Keeper. The interest rates with Fannie Mae are a little higher, and adjust monthly. The benefit of the Fannie Mae program is that the maximum mortgage limit is higher. The limit for 2006 is $417,000 and does not vary by county or state.

To be eligible for a reverse mortgage, the borrower must be 62 or older, and the home must be the borrower’s permanent residence. Because there’s no repayment obligation, borrowers need not have excellent, or even good, credit.

More information on the FHA and Fannie Mae programs can be found at their websites:

• HUD/FHA
• Fannie Mae