Boston — More than 10 million older Americans own their own homes ''free and clear'' of any mortgage debt. Yet many of them are poor. While they do not have house payments to worry about, their savings, social security, and pensions - if any - are barely enough to live on.
Soon, many of these senior citizens will be able to use that equity in their homes to give them up to several hundred extra dollars a month, for the rest of their lives.
Beginning this month, the first of two new programs designed to turn elderly homeowners' equity into lifetime income will get under way in California. A second program is expected to start in New Jersey in July and spread through the Northeast before reaching out to the rest of the United States next year.
People participating in the Fouratt Senior Citizen Equity Plan, based in Carmel, Calif., will sell their home to a private buyer or group of buyers gathered by Fouratt, says Robert Henry, a partner in the real estate firm. Buyers will then enter into a leaseback agreement with owners, guaranteeing them occupancy and an income for as long as they like.
At the time of the agreement, an annuity is opened with an insurance company. If the person outlives the money earned from his house, the annuity takes over, continuing the same level of payments.
A different program being put together by American Homestead Inc., of Moorestown, N.J., has meant raising some $100 million in capital from private investors, pension funds, and insurance companies. The money will be funneled to banks and savings-and-loan institutions, which will arrange ''open ended'' loans that will provide an income for as long as the homeowner lives or until he moves and sell the house.
''When a program like this fits, it's amazing,'' says Kenneth Scholen, project director at the National Center for Home Equity Conversion in Madison, Wis. ''People just can't believe they're getting several hundred extra dollars a month when they were just sitting in their homes, not being able to afford anything else and not wanting to leave because they didn't want to give up that house.''
The California and New Jersey programs are extensions of an idea that has been around for sime time. But these programs have usually provided just a few years of income. Often, the money ran out while the person was still living. Known as reverse-annuity mortgages, or RAMs, these programs have had a sporadic history. A few have survived in places like Marin County, Calif., where four large banks are behind them and where customers plan to sell their homes in a few years anyway but need a RAM to see them through in the meantime.
In the cases of both Fouratt and American Homestead, the size of the monthly checks senior citizens receive will depend on their ages and the value of their homes.
''The people who will benefit most are the older elderly, like 75 and older, '' Mr. Scholen said. ''The older you get, the more money you get.''
For example, Mr. Henry of Fouratt indicated that a 79-year-old woman with an more payments on the note, so she would get less per month,'' he said.
At American Homestead, company president James Burke explained, checks will keep coming to the homeowners until they ask the bank to stop sending them, or until they move, sell the house, or die.
At this time, the homeowners or their heirs will owe the bank the total of all the checks, deferred interest (figured at a rate well below mortgage rates prevailing at the time of the original deal), and a percentage of the increase in the value of the property gained in the interim.
This repayment will come entirely from the sale of the house. And if the proceeds from the sale are less than the total of the checks or if the house has dropped in value, it won't cost the owners or heirs any additional money. The investors will take the loss, expecting a compensating profit on a majority of the others.
A key to these programs, Mr. Burke said, is their size and the pooling of actuarial risk. By bringing together many big-money investors and many elderly homeowners, the uncertainties of varying life expectancies and changing economic conditions are minimized.
At Fouratt, the program will be marketed through licensed real estate brokerage firms and the Fouratt name will appear as part of the newspaper, television, and radio advertisements, as well as on other promotional literature , Mr. Henry said.
American Homestead's name, by contrast, ''will be invisible,'' said Mr. Burke , because it is being marketed through banks and S&Ls.
Both companies are proceeding cautiously with their programs, realizing the potential for skepticism from people who need extra income but are reluctant to give up what may be the only major piece of property they own.
''People should be cautious. They should be skeptical,'' Mr. Scholen said. ''They should put the burden on these companies to prove that they are going to do what they say. Everyone realizes that the first products out there have got to perform.''
If the Fouratt and American Homestead programs are succcessful, he added, they will likely be joined by several other firms, including some that may not be completely legitimate. ''Where there is a great opportunity, there is great risk.''
To help people find out about equity conversion programs, Mr. Scholen's organization is trying to develop a national clearinghouse of information and evaluations, which would keep records of each firm's products and performance.
''People should talk to their banker, tax consultant, and lawyer before getting into a program like this,'' Mr. Henry added. ''They aren't for everybody.
''But there are a lot of people in desperate shape who can use something like this. They're not starving, but they're not comfortable. Many see no sense in having that equity sitting around doing nothing for them.''