You may notice that, with every declaration of a new reverse mortgage guideline, the words “HUD” or “FHA” are somewhere in that announcement. That’s because these government entities oversee reverse mortgages and their lenders. These are the agencies that insure and regulate this kind of loan.
The Federal Housing Administration (FHA)
One of the benefits of a reverse mortgage is that it is non-recourse loan. That means you will never owe more than your home is worth. How is that possible? The FHA.
The Federal Housing Administration (FHA) insures reverse mortgages and absorbs any remaining balance of the loan if the home is worth less than what is owed. As part of the loan, the borrower pays for this insurance.
FHA also takes on the responsibility of the loan should a reverse mortgage lender go out of business. It makes lending and borrowing less risky. It’s important to remember you can only get these benefits from the FHA with a reverse mortgage that is insured by the federal government. While there are some proprietary reverse mortgages on the market, these reverse mortgages are NOT insured by the federal government and should only be initiated if you understand everything these kinds of loans can offer.
The U.S. Department of Housing and Urban Development (HUD)
Some of the main purposes of the U.S. Department of Housing and Urban Development is to help protect home mortgage borrowers and oversee reverse mortgage lenders, the FHA, and various housing and community development programs. This cabinet department is the authority in reverse mortgages.
In fact, HUD is the agency that makes counseling a required step in the reverse mortgage process. It also sets high standards and requirements that reverse mortgage lenders must uphold. It doles out consequences for those who do not uphold these standards as well. Lenders that do not follow these requirements could lose the ability to offer reverse mortgage loans.