How Safe Is Your Reverse Mortgage?

by Peter G. Miller
October 30th, 2008

With all the news of bank losses, bank failures and bank screw-ups it’s hardly unnatural to wonder just how your bank fares in the safe-and-secure department.

For reverse mortgage borrowers or those considering a reverse mortgage the level of concern can range from “no worries” to “oh my.” Here are some situations to consider:

___You’re thinking of getting a reverse mortgage so the important issue is whether or not the lender can deliver as promised at closing. A lender in the news for big losses might not be the best choice.

___You have a reverse mortgage backed with FHA insurance. Good news — no worries. If the bank goes into the dumpster Uncle Sam will make good on any money to which you are due.

___You have a reverse mortgage and have gotten all the money to which you are due. Great. No problems. Just keep paying property taxes and other required obligations.

___ You have a reverse mortgage with a line of credit outstanding. You can borrow more according to your agreement. The mortgage is not FHA insured. This is a situation which requires investigation. Contact the bank and ask about their financial status. Be aware that many lenders have limited withdrawals from traditional (forward) home equity lines of credit (HELOCs). This does NOT seem to be a problem with reverse mortgages as I read the financial pages, however it can’t hurt to chat with bank officers.

___You have a reverse mortgage and your lender goes out of business before closing. So far all failed banks have been sold to other banks or taken over by the FDIC. All insured deposits have been covered. Whether all loan commitments have been fulfilled, or fulfilled on a timely basis, is unclear. Contact your lender immediately for specifics.

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