Feel Safe Taking a Reverse Mortgage

The FTC, HUD, FHA and Your Reverse Mortgage

Federal Trade Commission (FTC)

Senior citizens are a vulnerable group and reverse mortgages are complicated lending tools. For these reasons, the government's Federal Trade Commission (FTC) works hard to provide and enforce a number of consumer protection measures designed to help seniors benefit from reverse mortgages without falling victim to scams.

• FTC uses a business alert system aimed to inform HUD counselors of deceptive practices.
• FTC tests disclosures and advertising to confirm they are clear and useful without creating unintended consequences.

US Department Of Housing And Urban Development (HUD)

False or misleading advertising is often used to increase reverse mortgage originations. The US Department of Housing and Urban Development (HUD) trains counselors to educate prospective borrowers about the facts and consequences of using a reverse mortgage. Counseling by a HUD approved counselor is mandatory for the majority of reverse mortgages. If you apply for a type of reverse mortgage that does not require counseling, it is highly recommended that you voluntarily meet with a HUD counselor to discuss your loan.

Federal Housing Administration (FHA)

The most common reverse mortgage is a Home Equity Conversion Mortgage or HECM (pronounced heck'em). These HUD reverse mortgages are insured by the Federal Housing Administration (FHA). At the time of the loan's funding, a mortgage insurance premium is paid to the FHA. Currently, the up front mortgage insurance premium on a HECM is 2.25% of the maximum claim amount.
FHA insurance protects the borrower in the event that the reverse mortgage lender or servicer goes out of business. You will continue to receive your equity payments as agreed because the FHA will step in to replace the lender or servicer if necessary.

Non-Recourse Loans

When you take a reverse mortgage against your home, you are pledging that property as collateral to repay the reverse mortgage lender. What happens if the value of the home declines and eventually the balance due on the reverse mortgage exceeds the home's value? Can the lender require the borrower or the heirs to pay any deficiency using other assets, such as cash or stocks? No, the pledged property is the ultimate source for repaying the reverse mortgage.

Reverse mortgages are non-recourse loans. A non-recourse loan means the collateral (your house) securing the loan is the ultimate source of repayment. The lender cannot go after the borrowers' personal assets in the event of a default. The lender can sell the collateral (your house) but cannot seize or sell any other assets. Read the loan agreement carefully to make sure that you do not do anything to void the non-recourse clause.

Total Annual Loan Cost Disclosure (TALC)

You can feel secure that the reverse mortgage rate and loan costs will be accurately disclosed to you before you are obligated to the loan. Reverse mortgage lenders are required by law to give you a Total Annual Loan Cost Disclosure (TALC) within just a few days of applying for a reverse mortgage. This disclosure has been proven effective for allowing seniors to compare a number of reverse mortgage loan scenarios side by side.