The Government’s Role in the HECM Program

What is the government’s role with a Home Equity Conversion Mortgage (HECM) program?

The Home Equity Conversion Mortgage (HECM) program, is a reverse mortgage program offered by the Department of Housing and Urban Development (HUD) and insured by the Federal Housing Association (FHA) and is available to homeowners at least 62 years or older, who want to tap into a portion of the equity available in their home and turn it into cash. With the reverse mortgage loan, payments are deferred until the borrower leaves the home permanently or is no longer keeping up with the borrower obligations.

This federal government insured loan can be a great financial tool for senior citizens during their retirement years. But, how is the government involved with your reverse mortgage?

The FHA’s role in the reverse mortgage industry is to insure the reverse mortgages to protect both the borrowers and the lenders. For example, if the borrowers were to exceed the value of the property, then the FHA will cover the losses to the lenders. The FHA is also obligated to cover the costs of payments due to the borrower in the event the lender does not.

HECM is the most common type of reverse mortgage available to senior citizens. Even though it is a product insured by the Federal Housing Association, the government is not directly involved with providing reverse mortgages to consumers. With a federally insured reverse mortgage, both consumers and lenders will benefit from the protection of the FHA.

Because your reverse mortgage is insured by the government, there are certain regulations that a borrower must abide by to qualify and to keep their reverse mortgage loans from being due.

1. Borrowers must attend FHA-mandated reverse mortgage counseling session.

2. Borrowers will pay for mortgage insurance premium.

3. Property must be primary residence.

4. Borrower must not have delinquencies on any federal debt.

5. All borrowers on title must be at least 62 years or older.

6. Borrower must keep up with property taxes and insurances on primary residence.

Benefits of an FHA-insured Reverse Mortgage

Under FHA’s non-recourse loan policy, the borrowers or their heirs will never owe more than what their house is worth at the time of the appraisal. This means that if you owe $300,000 but the home is worth $250,000, then you would not have to pay more than the $250,000. With your non-recourse loan the collateral to the bank is the property and once the home is returned to the bank, the loan would be satisfied.

As previously mentioned, another benefit of an FHA-insured Reverse Mortgage is that if the lender goes out of business, the borrower will not be affected. The FHA guarantees that the borrower will continue to receive their reverse mortgage loans under the terms of agreement of their loan.

With the FHA-insured reverse mortgage, it is important for borrowers to recognize that with these protections, comes a cost. FHA-insured reverse mortgages require an upfront mortgage insurance premium that borrowers must pay.

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About the Author:

I have been working in the reverse mortgage industry for 20-plus years. My goal is to provide consumers the most up-to-date and relevant information about the reverse mortgage industry and how it can affect them.

Thanks for reading!

-Alan F.

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