Are All Reverse Mortgages FHA?

A question often asked is, “Are all Reverse Mortgages FHA insured loans?”

The answer is, yes the vast majority of Reverse Mortgage Loans in the United States are FHA insured loans, backed by the Department of HUD. They are officially named HECM (Home Equity Conversion Mortgage.)

Over 90% of all Reverse Mortgages are FHA insured HECM loans. Before the financial crisis came to a head at the end of 2008, there were reverse mortgages available called, proprietary loans, which were not insured by FHA. Proprietary loans were created by lenders using the lender’s own criteria for qualifying and were underwritten by the lenders themselves or the investors that were ultimately purchasing the proprietary reverse mortgage loans after they were originated.

When the financial markets all but collapsed in 2008/2009, the private investors buying non-FHA insured reverse mortgage paper exited the market. Those investors were no longer interested in taking the risk of purchasing mortgage backed securities without government insurance against future losses.

With virtually no proprietary reverse mortgage products on the market, almost all reverse mortgages originated in the past 3 plus years have been FHA Reverse Mortgages.

To help support the reverse mortgage market and the demand for these unique home equity loans, FHA and HUD have kept the maximum loan amount at the all time high of $625,500. It had been rumored that FHA was going to lower the loan limit back down to pre-recession levels of $417,000 or less at the end of 2011. Fortunately, they did not do that.

Speculation is that the reason FHA/HUD kept the loan limit at $625,500 is due to the fact that there is still very little participation by non-government investors in the reverse mortgage secondary market. Until private investors regain their appetite for investing in reverse mortgage backed securities, there is little chance that proprietary reverse mortgages will be available anytime soon.

Until then, close to 100% of all U.S. Reverse Mortgages will continue to be FHA insured, HECM’s.

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