Common Myths – 1 & 2
Basics, Common Myths August 9th, 2009
Bad information continues to circulate among seniors even as federally insured Home Equity Conversion Mortgages (HECMs) soar to record levels. These myths seem to originate from well-meaning but very poorly informed relatives, friends or even professional advisors who recall times long since passed when most reverse mortgages were not insured and were not regulated by the federal government.
The media – particulalrly print organizations and TV news – perpetuate these myths that follow. I would have to include the internet, too, as a major source of misinformation. Today there are over 2.6 million Google references to “reverse mortgages” and far too many of them are written by people who have no experience and a surface knowledge of the subject. Even some of our politicians (like Senator McCaskill D-MO) grandstand and hold hearings about reverse mortgage scams foisted upon senior homeowners – but fail to cite a solitary example of a HECM loan problem or even exhibit a high degree of understanding for how much the HECM program benefits seniors.
HECM Loan Myths
1. The Bank Owns The Home – As is the case with any conventional mortgage, the borrower continues to own the property. Title remains intact. You never “sign the house over” to the lender when you do a HECM reverse mortgage. Of course, the lender does have a lien against your property but you own it. Period! Tell your well-meaning neighbor that he is dead wrong on this one.
2. The Bank Takes The House – The lender does not want to own real estate. At the end, when all borrowers have left the home, obviously someone must pay off the mortgage balance. But the bank is not going to “take the house” unless there is absolutely no other solution. If the home is sold by the estate/heirs, they will pay off the existing balance and dispose of the property as they see fit. In order for title to transfer to a new owner, the existing reverse mortgage balance will have to be paid. If the estate or heirs sell the property for more than the balance owed on the reverse mortgage, they keep the difference. If the property is sold for less than the balance owed, FHA mortgage insurance fills that gap. And since HECM loans are non-recourse loans, the estate or heirs have no liability for any shortfall.
In cases where the heirs or estate wish to keep the home, they simply find a conventional mortgage in an amount sufficient to pay off the existing reverse mortgage balance and keep the home. (There are some significant recent FHA interpretations dealing with this procedure. See Non-recourse Loans post.)
More Myths
In following posts I will discuss outrageous fees, what’s left for the kids, limits on use of the money and several other topics of mythical proportions. With apologies to Joseph Campbell, the Power of Myth is eternal and might be unlimited.
Author – Robert H. Irving, CSA
Senior Reverse Mortgage Consultant
August 11th, 2009 at 6:00 am
I like this post, these are very common myths that mostly people have…
August 11th, 2009 at 12:06 pm
@ fhamortgageloan – Thank you. Please tell everyone you know.