Usually when we think about mortgage insurance we think about policies that benefit lenders when homes are foreclosed.

Private mortgage insurance (MI) as well as the FHA and VA programs are all examples of mortgage insurance and all will cover some or all lender losses in the event of default.

But with reverse mortgages the situation is different. Since the maximum amount due a lender is equal to the equity in the property, foreclosure is not a worry. If a home is foreclosed the lender gets the proceeds less costs.

But what if a lender fails? That would have seemed like an odd question a year ago but today maybe it’s not so strange.

Let’s say, for example, that you have a $200,00 FHA-insured reverse mortgage. You paid an up-front insurance premium. You’ve taken out $15,000 to date. Where will get your money if the lender implodes?

“Yes.” says HUD spokesman Lamar Wooley. “If lender fails to advance the payments, then we step in and do so.”

That’s a powerful guarantee, given that FHA promises are backed by the full faith and credit of the United States government,

This entry was posted on Monday, August 13th, 2007 at 1:37 am and is filed under Reverse Mortgage . You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.