Consumer Protections and Your Rights:
Reverse mortgages come with several consumer protections to safeguard homeowners. Understanding these protections can help ensure a safe and informed decision-making process.
Reverse mortgages come with several consumer protections to safeguard homeowners. Understanding these protections can help ensure a safe and informed decision-making process.
Non-Recourse Feature
Reverse mortgages are "non-recourse" loans. This means the homeowner or their heirs will never owe more than the home's value when the loan becomes due. Even if the balance of the reverse mortgage exceeds the home's value, the additional amount is not owed by the homeowner or their heirs.
Mandatory Counseling
Before getting a Home Equity Conversion Mortgage (HECM), which is the most common type of reverse mortgage, homeowners are required to attend a counseling session with a HUD-approved counselor. The aim is to ensure that the homeowner fully understands the product, its costs, and its implications. This session is an essential part of the process and serves as a key consumer protection measure.
Cooling Off Period
After the counseling session, there is a mandatory "cooling off" period before the loan process can continue. This gives the homeowner time to consider the information provided during the counseling session, discuss it with family or advisors, and decide whether to proceed.
Protections for Non-Borrowing Spouses
For HECMs originated after August 4, 2014, there are protections in place for non-borrowing spouses. If the borrowing spouse passes away or moves out of the home permanently, the non-borrowing spouse can continue to live in the home as long as they meet certain criteria, such as paying property taxes and homeowner's insurance.
Occupancy Requirements
A reverse mortgage requires the borrower to live in the home as their primary residence. If the homeowner moves out (for example, to a full-time care facility) for more than 12 consecutive months, the loan becomes due and payable. This can limit flexibility if the homeowner's health or living situation changes.
Additional Facts and Stats
HECM borrowers withdrew an average of 73.26% of their available principal limit on their initial draw in 2021, up from about 67.7% in 2020 and 63.1% in 2019. This trend suggests that many homeowners are taking advantage of the significant liquidity provided by reverse mortgages to meet their financial needs
In 2021, approximately 90% of borrowers with HECMs opted for the line-of-credit payment option. This option provides flexibility and control over finances, as the homeowner can choose when and how much to withdraw from the loan proceeds
The Federal Housing Administration (FHA) gave a mortgage insurance endorsement to 49,163 Home Equity Conversion Mortgages (HECMs), a type of reverse mortgage, in the fiscal year 2021, up from 41,825 in 2020 and 31,272 in 2019. This indicates a rising trend in the popularity and acceptance of reverse mortgages as a financial tool.
Reverse mortgages are proving to be more popular among women than men, with 36% of federally insured reverse mortgages serving single female borrowers and 21% serving single male borrowers. Additionally, 41% served multiple borrowers, showing the diversity of households that can benefit from reverse mortgages