The Origins of the Biggest Reverse Mortgage Myth

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Here’s where one of the biggest myths came from

reverse mortgage newsThe best lies have an element of truth in them. Perhaps the truth serves as the sugar coating on a poison pill that has infected the minds of many older homeowners who fear they would sign over ownership of their home if they chose to get a reverse mortgage. Where did such an urban legend begin? Does it have any historical merit?

The best place to begin our journey in seeking the truth is online. Here are several articles we found. The majority of the confusion is rooted in early versions of proprietary, or privately issued, reverse mortgage products. Many of the loans had shared appreciation clauses.

Another factor adding to the confusion of home ownership with a federally-insured reverse mortgage (or HECM) is the Deed in lieu of foreclosure. In its simplest definition, a deed in lieu of foreclosure does in fact sign over property ownership to another party. In the case of a HECM, a deed in lieu of foreclosure is typically used by the surviving heirs of a HECM borrower who find their parent’s reverse mortgage loan balance exceeds the home’s present value. This instrument signs over the home and property back to the lender avoiding a foreclosure proceeding. The deed in lieu in foreclosure represents the conclusion of the HECM loan and more importantly the importance of the loan’s non-recourse clause, which states that no other assets other than the home can be used to secure the loan. Heirs unfamiliar with this unique transaction could easily be left with the impression that their parents had signed over their home and thus add credibility to the myth.

Download the video transcript here.

Be Careful What You Say

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*Note: Unintentional error mentioned in the video regarding the HECM line of credit calculation has been corrected in the transcript. The HECM line of credit growth rate is based on the current month’s interest rate charged + 1.25% FHA mortgage insurance charge. 

Borrowers are not the only ones who misunderstand the HECM

hand-over-mouthA few days ago I was speaking with a very skilled and experienced trainer in our industry. We both share a passion for educating, motivating and empowering reverse mortgage professionals. During our short chat we landed on the topic of key provisions of the HECM program that are often misunderstood not by borrowers, but by some well-meaning reverse mortgage professionals.

Educating our potential borrowers is key but it can be counterproductive if we are dispensing inaccuracies. Let’s examine two of the most commonly misunderstood aspects of the Home Equity Conversion mortgage.

1- Who FHA Insurance actually protects. Many loan officers mistakenly tell their borrowers of the wonderful protections that FHA insurance provides. After all who doesn’t like to see some benefit for the premiums they pay?

 

Download a transcript of this episode here.

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