Going forward in reverse
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reverse mortgages will have withdrawn from the business.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
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.
Scott Funk is Vermont's leading Aging in Place advocate,
writing and speaking around the state on issues of concern to
retirees and their families.