HECM Reverse Mortgages Are Non-Recourse Loans

9/16/2008

posted by N. Sioris

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HECM reverse mortgages, insured by FHA and backed by HUD are the most widely used reverse mortgages in the U.S. It is estimated that 85 to 90% of all the reverse mortgages originated are HECM reverse mortgages. (Home Equity Conversion Mortgage.)

The reasons for the popularity of HECM reverse mortgages are many. However, the purpose of this article is to define one of the major reasons for their attractiveness to consumers.

With Wall Street in turmoil from lack of regulation and financial titans like Bear Stearns and Lehman Brothers falling like domino chips, people are generally unnerved and seeking safety. Fear of anything financial or mortgage related is paralyzing people that might be in need of a mortgage product today.

If you are a senior homeowner thinking about obtaining a reverse mortgage in today's market, there is a safety feature built into FHA insured HECM reverse mortgages that is called "non-recourse." The term non-recourse, means that you or your heirs are not personally liable to the lender at the time your HECM reverse mortgage is paid off.


The House Stands Alone For The Debt

In its' most simple definition; your house stands alone for the debt. This means that at the time of repayment of the reverse mortgage plus interest, if your home cannot be sold or refinanced for the total amount owed on the loan, you, your estate or your heirs cannot be required to pay off any shortfall that may exist. The lender does not have "recourse" to anything other than your home. Not your other assets, not your income, or that of your heirs or estate.

Even if you live to age 112, and have received monthly loan advances throughout your lifetime, and your home declines in value between now and then, and the total amount of money that you have received plus interest from your HECM reverse mortgage is greater than the amount your house can be sold for, you or your heirs can still never owe the lender more than the value of your home. The pay off amount to the lender is limited by the net proceeds from the sale of your home.

At a time when home values are declining in most areas across the country and the economy is suffering from toxic lending practices and unregulated financial markets, it can be reassuring to have the "non-recourse" provision included as one of the safeguards for HECM reverse mortgages.

Click here to read about additional safeguards for HECM reverse mortgages.