As the credit crisis has resulted in a tightened mortgage market, the growth in Rhode Island’s reverse mortgage market has slowed, although the industry seems to be holding its own so far this year.

The number of Home Equity Conversion Mortgages — reverse mortgages that are insured by the U.S. Department of Housing and Urban Development — issued in Rhode Island had been steadily growing since 2005, when 227 loans were closed.

That number increased to 372 in 2006, and spiked to 552 last year, according to Nancy Smith Greer, director of the U.S. Department of Housing and Urban Development’s Providence field office.

HECM loans account for an estimated 95 percent of the reverse mortgage market.

In the first 10 months of this year, 409 HECM loans have closed in Rhode Island, she said. Depending on how many more HECM loans close this month and next month, this year’s level could match the 2007 level or be slightly below it, she said.

Reverse mortgages are loans made to homeowners 62 and older who want to tap into the equity of their houses without moving out and selling them.

Borrowers can choose to receive a lump sum payment, line of credit or monthly payments, and they can use the money for any purpose.

The mortgage must be repaid only if the house is sold or when the borrower dies. But interest charges and fees accrue during the life of the loan.

As of Jan. 1, senior homeowners will also be able to use reverse mortgages in situations in which they are selling an older residence and buying a new dwelling that better fits their needs, according to Darryl Hicks of the National Reverse Mortgage Lenders Association.

Reverse mortgages have always had high closing costs, including mandatory mortgage insurance for HECMs, and for that reason have not been recommended for people planning to sell their houses in the near future.

This month HUD has enacted provisions from the Homeownership and Economic Recovery Act of 2008 to increase the amount people can borrow with HECM loans, and limit the origination fees.

The new origination fee limit is 2 percent of the initial $200,000 and 1 percent on the balance of the loan, up to a cap of $6,000.

HUD has also set a new, higher national loan limit for HECM loans: $417,000. Previously, limits were set regionally, and Rhode Island’s HECM loan ceiling was $316,000, according to Smith Greer.

If there turns out to be a falloff in HECM loans originated in Rhode Island this year, it could be because many consumers were advised to hold off until HUD implemented the new provisions, Hicks said.

“You had a lot of people sitting on the fence in some parts of the country,” he said.

At Rhode Island Housing, there has been a decrease in its reverse mortgage activity, possibly because there are more private reverse mortgage lenders in the market, according to spokeswoman Joanne Ryan.

Ryan said Rhode Island Housing typically issues about 60 reverse mortgages a year, and last year it closed on 62, but “we’ve only done 28 HECM reverse mortgages this year.”

“Typically we don’t do a lot of them,” she said. The agency started offering the loans in 1988, when no one else in the state was in the market, she said.

“However, many more lenders are in the marketplace right now, which may account for why we are doing less of them,” she said.

Nationally, there was a 5-percent growth in HECM loans between fiscal 2007 and 2008, according to Hicks.

The association has reported that 112,154 Home Equity Conversion Mortgages were closed in the United States in fiscal 2008, which ended Sept. 30, surpassing the record loan volume of 107,558 in fiscal 2007, according to data provided by HUD.

“We’re anticipating that there is a lot of pent-up demand,” Hicks said said. “Their home values may have gone down, but people still have equity, and they still have needs.”

cdunn@projo.com