FedHousingAdminThe most popular reverse mortgage, referred to as the Home Equity Conversion Mortgage (HECM), is not a government loan.   The loan is not made to you by FHA… in spite of what you may have been told or what you might have read.  HECMs are loans that are made by lenders/financial institutions and guaranteed by FHA.  There’s a big difference here.  The government is not lending you the money; the bank is.  The bank is following guidelines set by FHA and will eventually sell your loan to Fannie Mae.  HECM loans generally do not remain within the lender’s portfolio.

HUD/FHA establishes the rules & regulations for the HECM program and the bank, in strict adherence to these rules, makes the loan and eventually secures the government’s endorsemment.  Once the loan is qualified, all financial institutions sell these loan to Fannie Mae – a quasi-government organization.  There is currently not a large market for these endorsed loans so Fannie Mae remains the primary investor.

While it is the bank lending you the money, very few banks actually offer this product for two reasons.  First, there is not a huge demand by consumers for HECM loans when compared to other loan types (such as home equity or conventional mortgage loans).  Second, reverse mortgage loans are unique among lending products.  Extensive initial training and ongoing education is required to gain some level of expertise in origination, processing and educating consumers about the details.  These skills are generally not transferrable from experience with other loan products.  Loan officers with conventional mortgage lending experience know almost nothing about reverse mortgages.  They often make the worst originators if they choose to cross over to the reverse side because most of the marketing & sales skills honed over the years must be unlearned.

Author – Robert H. Irving, CSA
Senior Reverse Mortgage Consultant

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