What role does the government play with Reverse Mortgages? The Reverse Mortgage market has been around since the early 1960′s, but the United States government did not get involved with the program until the late 1980′s. The major reason was that the reverse mortgages that were being offered by the private market could be very negative to the financial well-being of a senior. The stipulations that private lenders would put on these types of mortgages made them very risky for the borrower and had almost no risk to the lender. The Federal Housing Administration (FHA) stepped in and put together a program that made sense for all parties involved.At first, when reverse mortgages hit the private market, some of the stipulations that the lenders would put into their contracts were equity sharing. If the borrower decided to sell the home at a later date, the lender would share in the profits that the borrower would get from the sale of their home. Also, if the property was worth less than what was owed on the loan, the lender would demand payment beyond the sale price of the home to satisfy the debt owed.
Today, the FHA plays a vital role to make sure that not only the lender reaps the benefits of offering a reverse mortgage, but that the borrower would not be taken advantage of. It is almost unheard of today that lenders share in the equity of the sale of a home with the borrower or would a borrower ever owe more than the property is worth, if the balance of the loan exceeded the home value. Essentially, for lenders to be able to offer a reverse mortgage insured by the FHA, they have to play by the rules set forth. FHA makes sure that all parties get paid properly with a reverse mortgage by collecting Mortgage Insurance on the loan. Each month, the mortgage insurance fee gets collected for every reverse mortgage on the market and if the lender cannot be made whole by the terms of the contract with the borrower, then the FHA will step in and pay the lender. And vice versa, if the lender goes bankrupt and can no longer make payments to the borrower, the FHA takes over the loan and continues the obligation that was set forth when the borrower signed for the loan.
Without the FHA, the reverse mortgage market would have probably dried up a decade ago. And seniors would no longer have another viable option to them in their retirement years.
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What Role Does the Government Play with Reverse Mortgages
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Reviewed by Merlyn Rosell
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Published :
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