Mark Reeve is vice president of the Reverse Mortgage
Division at Plaza Home Mortgage Inc. He manages Plaza’s
reverse-mortgage wholesale and correspondent platforms.
He also oversees the training and education of more than
100 account executives, develops operational procedures
and resources for brokers and correspondents, and oversees
all internal operations. Reeve earned a bachelor’s degree
from Northern Arizona University. He earned the Certified
Reverse Mortgage Professional designation in 2011. Reach
Reeve at firstname.lastname@example.org.
Separate Fact From Myth
With Reverse Mortgages
Home equity conversion loans are not the bad boys of the lending world
By Mark Reeve
There are several common myths about reverse mortgages. Most of those myths, however, are simply the result of a lack of proper understanding of how reverse
As a mortgage originator, don’t let myths stop you
from adding a product line that can help you grow
your business. If you’re interested in adding the reverse
mortgage to your product offerings, but have some
hesitation, take heart.
Some of the common myths about reverse mortgages can be easily dispelled. Chief among them is the
myth that a reverse mortgage is too risky.
People are hesitant to obtain a reverse mortgage for
various reasons. Many people may not be aware of
the rules that have been put in place to make the
reverse mortgage a safe financing option.
A common risk, or myth, that some worry about is
that a borrower could end up having to pay back
more than the home is actually worth. One of the
most important details to take away regarding the
most popular reverse mortgage program — the Federal Housing Administration-backed Home Equity
Conversion Mortgage, or HECM — is that it is a nonrecourse loan. That means the family or estate will never
owe more on the reverse mortgage debt than the
value of the subject property.
Spousal protection is another factor now in place
that is designed to protect a reverse mortgage borrower. In today’s market, if the senior borrower is
married, both individuals need to be accounted for
in the underwriting decision for a reverse mortgage.
That was not the case a few years ago.
If the borrower’s spouse is not of qualifying age
when the reverse mortgage is taken out, this guideline
now prevents the mortgage from being called “due” in
the event of the eligible HECM borrower’s death. The
nonborrowing spouse must meet specific guidelines
to maintain this protection, however. Furthermore, a
nonborrowing spouse can remain on the title.
Another major change to the program that protects
a borrower is that underwriting requires a full credit,
income and property assessment as part of determining
borrower suitability. This was not the case prior to
April 2015. Furthermore, property charges such as
taxes, hazard coverage and homeowner association
fees are reviewed for timely payments as well. The
intent of this guideline is to minimize property tax and
insurance defaults and help to ensure the desired loan
is a net benefit for the borrower.
Other changes include limitations on accessing funds
during the first 12 months of the loan. This rule helps
to ensure that the borrower will have money down the
road. Also, the limitation on available proceeds keeps
the loan balance from growing rapidly in the early
years, thus protecting the future equity position of the
When the reverse mortgage was originally popularized in the mortgage market in the late 1980s and on
through the 1990s, it was often referred to by some as
a “bailout loan” or a “loan of last resort.” With limited
credit and income documentation, it was essentially an
equity-driven product. Although that was not always
the case, in many instances, those stereotypes were
true back then.
The way that reverse mortgages are used today,
however, looks entirely different and the notion that
it is a loan of last resort has been retired into the dust-
bin of history. The primary reason senior borrowers
look into a reverse mortgage today is to immediately
eliminate their monthly home-payment obligation.
This release of cash flow allows reverse mortgage
borrowers to instantly free up income for other
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