By the time this goes to press, the 4th major national lender of reverse mortgages will have withdrawn from the business. Each has departed for their own (and different) reasons. Still, it is causing concern among retirees who are considering or already have a reverse mortgage. What do these big companies know that we don’t? Is there anything we can count on?
Well, first of all, if these big companies were so much smarter than the rest of us, they would have created business models that could better anticipate and respond to the financial upheavals of the last few years. In reality, those companies who left reverse had other business to concentrate on. Many strong lenders remain and are committed to reverse mortgages.
As to what we can count on, in Vermont that’s easy because only one kind of reverse mortgage is allowed here: Home Equity Conversion Mortgages or HECM’s. That’s the one insured by the federal government through HUD (Department of Housing and Urban Development) with FHA (Federal Housing Administration).
FHA has been around since Roosevelt and is a profit-making arm of the federal government. It is not part of the deficit and is not supported directly by taxes. Those who use the program pay for its costs.
While all HECM’S are reverse mortgages, not all reverse mortgages are HECM’s. That FHA insurance is what makes the difference. All insurance exists to transfer or distribute risk. The HECM insurance protects the homeowners and their heirs from every owing more than the house will sell for, so you can’t be “underwater” with a HECM reverse mortgage. It also protects the borrower from the lender failing to extend available funds. Unlike regular credit lines, a HECM reverse mortgage credit line cannot be canceled, even if the lender goes out of business, property values go down, or the borrower has credit problems (as long as the house remains the borrower’s primary residence and property taxes and home insurance are paid).
It is the FHA insurance that makes a HECM something retirees can count on. The access to home equity is insured with the federal government just like money in a checking or savings account is insured with the federal government.
So, while it’s important to know your lender and nice if they stay your lender, when it’s a HECM, any problems the lender has are the lender’s problems, not yours.
To learn more about Home Equity Conversion Mortgages, talk to those who advise you about your finances. You can also contact the National Reverse Mortgage Lenders Association. As with any financial decision, be careful, take the time to make an informed decision, and involve those you trust.
After all, Aging in Place doesn’t happen by accident.