Maggie's Reverse Mortgage Blog : October 2013

What is The Non-Recourse Feature in Reverse Mortgage HECM Loan?

The non-recourse feature is a very important safety feature for reverse mortgage borrower's and their heirs.

When the reverse mortgage is dueBecause a reverse mortgage is a rising balance loan and does not need to be repaid until the last borrower leaves the home permanently, there is a chance the mortgage balance could grow to be higher than the value of the home (or the home could decline in value).  The non-recourse feature guarantees that the borrower and their heirs will never owe more than the value of the home at the time it is sold.  Or you could say, THE HOME STANDS ALONE FOR THE DEBT.  There is NO RECOURSE for any deficiency other than the home itself.

With the HECM Reverse Mortgage, backed by FHA through HUD, (the Department of Housing and Urban Development) the downside risk of homeownership has been eliminated.  The borrower will never owe more than the loan balance or value of the property, whichever is less and no assets other than the home must be used to repay the deblt.

 

If this sounds too good to be true, go directly to the source and read for yourself:

 

HUD Handbook 4235.1 Par. 1-3C

        C.The HECM is a "non-recourse" loan.  This means that the HECM

borrower (or his or her estate) will never owe more than the loan

balance or the value of the property, whichever is less; and no

 

assets other than the home must be used to repay the debt.

 

When a HECM loan maturity event takes place and the property is 'underwater' at that time, the guidelines for satisfaction of the debt is:  "When a HECM loan becomes due and payable as a result of the mortgagor's death and the property is conveyed by will or operation of law to the mortgagor's estate or heirs, that party may satisfy the HECM debt by paying the lesser of the mortgage balance or 95% of the current appraised value of the property.

When the property is sold at 95% of the appraised value and the lender is accepting less than the reverse mortgage loan balance, it is considered a short sale.

 

By Maggie O'Connell

Comment balloon 0 commentsMaggie O'Connell • October 08 2013 12:38PM
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