What’s Reverse Mortgage (By The Book)

There’s a lot of discussion regarding reverse mortgages, but what really defines such a loan?

In an odd way, a reverse mortgage is more than the opposite of a “forward” mortgage. It has a number of characteristics which make such financing unique.

Probably the best way to understand why reverse mortgages are different is to look at the FHA’s regs for such financing. Here’s what HUD has to say about home equity conversion mortgages (HECMs) or what everyone else calls a reverse mortgage.

A. Loan proceeds in a home equity conversion mortgage (HECM) or “reverse mortgage” are paid out according to a payment plan selected by the borrower.

B. Unlike a traditional “forward” residential mortgage, which is repaid in periodic payments, a reverse mortgage is repaid in one payment, after the death of the borrower, or when the borrower no longer occupies the property as a principal residence.

C. The HECM is a “non-recourse” loan. This means that the HECM borrower (or his or her estate) will never owe more than the loan balance or the value of the property, whichever is less; and no assets other than the home must be used to repay the debt.

D. The HECM has neither a fixed maturity date nor a fixed mortgage amount.

E. If the lender is unable to make payments to the borrower, HUD will assume responsibility for making payments until the lender is able to resume. If the lender will not be able to make any
future payments, HUD will make payments for the remainder of the mortgage.

F. The mortgage proceeds paid by the lender and/or HUD will be secured by first and second mortgages on the property. These liens will allow the lender and HUD to recover any losses up to
the value of the property when the borrower dies, or no longer maintains the property as a principal residence.

G. Eligibility Requirements

1) Eligible borrowers are persons 62 years of age or older.

2) Eligible properties are one unit dwellings, including units in condominiums.

3) Eligible borrowers should own their homes free and clear or with liens not exceeding the principal limit.

This entry was posted on Sunday, September 16th, 2007 at 7:02 pm 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.