One of my recent clients quipped, “Navigating a reverse mortgage loan is like navigating white water rapids” Well if the senior to the left can do it so can you, I provide the “river” navigation!
The most often asked in depth question I address for clients is: what is this required reverse mortgage loan FHA insurance all about? I recently wrote the following article for the Grass Valley home town paper, The Union, and because the editor requires me to limit a topic to 400, give or take, words, I hope this won’t put you too far into advanced sleep mode:
Reverse Mortgage FHA Insurance ~ What is It? Why do I Need it?
Reprint from the Grass Valley Union Newspaper 7/5/2018
The Reverse Mortgage Loan question I am most often asked: Why is FHA (Federal Housing Administration) insurance required and what does it do for me, the borrower?
A concise answer: FHA Reverse Mortgage Loan Insurance provides 2 important protections for borrowers: #1 protection is the borrower will receive loan payments as agreed upon by the loan terms regardless of the financial viability of an individual lender; #2 protection is the borrower will never owe more than their home is worth. Let’s more fully explore each protection:
#1 Protection: Loan proceeds are guaranteed: RM borrowers can opt to receive their loan proceeds as a lump sum, a line of credit, or ongoing installments. The FHA insurance guarantees loan proceeds will be disbursed to the borrower as agreed upon under the terms of the loan. In the event the lender goes out of business, the borrower’s funds will then come directly from FHA. In addition, because of FHA insurance protection a RM lender cannot reduce, cancel or freeze a line of credit, which is NOT a protection in place with conventional equity lines of credit, they CAN be frozen or reduced. I always advise seniors to be cautious and understand the difference in protections if they opt to not do a RM loan, and instead pursue a conventional equity line of credit loan.
#2 Protection: Non-recourse Feature: Because a RM borrower is not making monthly payments on funds expended, the loan balance will grow larger over time. As we saw in 2007, real estate markets can change. In the event the borrower passes or sells, has expended all loan funds, and a downturn in home values has caused the house to be worth less than what is owed, FHA will reimburse the lender directly for any shortfall between the loan balance due and the home’s sale price. Neither the borrower nor their heir’s other assets are at risk to be tapped for repayment of a loan balance shortfall. As with all loans, if the home sells for more than what is owed, the borrower/heirs keep remaining funds, the lender is not entitled to any part of the remaining funds after the loan is paid off. I call FHA insurance a “peace of mind insurance” that is part of the cost of a RM loan, but well worth the protection it provides.
Shawna McDonald, Loan Officer has specialized in reverse mortgages loans and TLC for 10 years. She is approved with 11 of the largest reverse mortgage lenders in the nation, and available by confirmed appointment; her local office, Sierra Foothills Reverse Mortgage, is located at 412 E. Main St. Suite N, Grass Valley, (530) 497-3010. NMLS #271335 BRE #00585530 Borba Investments, Auburn, CA Company NMLS #76801 BRE# #01386892 As with all loans, it is required that property taxes and fire/casualty insurance be kept current.