The proper definition of the non-recourse feature is “FHA guarantees that the borrower will not owe more than the home is worth at the time it is sold.” This should be comforting to every homeowner and their heirs. They can be assured that if a homeowner lives a very long time, or if property values drop, FHA will pay a claim to the lender so that nobody is harmed by the loan being “upside down” or “under water”.                     

– Understanding Reverse

This is a primary consumer protection that makes HECMs so attractive. What’s not to love about this provision? It is a tremendous advantage for older homeowners that removes much of the risk associated with homeownership. Because many are skeptical about this claim, I often get asked to prove the non-recourse feature really exists. So the book, Understanding Reverse, documents the federal regulations and relevant handbooks that give us guidance.

Can a Reverse Mortgage really guarantee this?

Yes. The homeowner is not responsible for the portion of a loan balance that accrues beyond the home’s value. Another common explanation is:

“THE HOME STANDS FOR THE DEBT”… NOT the homeowner

Unfortunately, many understand this phrase to mean that the bank takes the home. No. The homeowner retains title to the home through the life of the loan and can sell it at any time with no prepayment penalty. The non-recourse feature is simply there to protect the homeowner and the lender from “crossover” loss, that point where the sale of the home is not sufficient to pay off the loan balance. At the time the homeowner wishes to sell, they cannot be held responsible for the portion of the loan that exceeds the home’s value.

So, who pays for this?

Before you say this is too good to be true, this is why FHA collects mortgage insurance premiums. FHA’s Mutual Mortgage Insurance Fund (MMIF) is a collection of funds created specifically for this purpose. But who pays for it? The large pool of HECM borrowers pay for it indirectly through the insurance premiums that accrue on their balances.

The non-recourse feature may also allow the heirs to obtain the home for less than market value. After the last borrower has died, the non-recourse feature allows the heirs to obtain the property for either 95% of the home’s value or the loan balance, whichever is LOWER. Again, there is no recourse to the estate for this.

Order my book today to learn more about how FHA protects consumers and ensures that the heirs are not stuck with a bill. Understanding Reverse is the most comprehensive guide for answering your most common questions about Home Equity Conversions.

On a recent flight, the passenger next to me asked, “What do you do?” I have begun to enjoy seeing the reactions when I reply, “I educate others on the proper use of reverse mortgages.” Predictably, she replied, “I sure hope I never need one of those.” THAT reaction is precisely why I wrote UNDERSTANDING REVERSE.

I have spent several years studying, selling, and teaching the Home Equity Conversion Mortgage (HECM), the popular federally-insured reverse mortgage product. The conclusion I, and other industry professionals, have come to is this:

When I turn 62, I WANT a HECM.

The federal government has established guidelines that, while complex, make this a financial tool every homeowner age 62 and older should consider, whether they need it or not. As evidence, consider that executives in my industry are getting HECMs for themselves and their family members. Unfortunately, our understanding of the product is different than that of the average homeowner. It appears we need a better understanding of reverse mortgages.

In response, I have written a book, titled Understanding Reverse that addresses the most common questions I get. The goal was not only to simplify the new reverse mortgage, but also to create a reference guide for answering those questions in the most compliant way. The book begins by answering the basics – what is a reverse mortgage? Every chapter that follows builds on previous chapters until the reader has a more comprehensive understanding from which to make financial decisions.

This web page, on the other hand, will include ongoing blog discussions about reverse mortgage concepts. This should also contribute to a better understanding of the product.

In addition to being an author and educator, I am the only Certified Reverse Mortgage Professional (CRMP) residing in Georgia. If you know someone curious about reverse mortgages, share this link. From here they can purchase the book and stay current with ongoing discussions through this blog.

For the other mortgage professionals that follow my writing, I would love to see your comments about how you plan to use a reverse mortgage during retirement.

As I post more blogs on this site, you will find that I am passionate about educating the public and correcting misconceptions. In fact, the skeptical passenger has since reached out to me for more information and is exploring her options. Whether she decides this is an option for her or not, that is one additional homeowner that now has a better understanding.

Dan Hultquist