In both reverse mortgages and the more familiar forward mortgages FHA is heavily involved insuring mortgages.
There exists an irony in that people perceive FHA mortgages to be mainly for first time home buyers and reverse mortgages for last time home buyers.
In either case these mortgages require the payment of an upfront mortgage insurance premium. That thing is expensive and people want to know why.
The word insurance invokes visions of physical items being monetarily covered against theft or damage.
Fha insurance sort of fools people. We see the money coming out of our pockets but it isn't actually directly for our benefit. In actuality the mortgage company is the recipient of the benefits.
Mortgage insurance exists to protect the lender against loss.
Foreclosure is the big problem for forward mortgages. FHA insurance protects lenders in this event.
Let's illustrate how this works with a real deal. Let's say the mortgage, at the time of foreclosure is $110,000 and the house is worth $100,000. Not an unusual situation, by the way.
What if the sale price is only $90,000. Now the lender is in the hole $20,000. The mortgage insurance covers the lender against this loss.
The reverse mortgage is protected by FHA in the event the value of the mortgage is actually greater than the value of the home. This is not foreclosure protection but it works about the same for the lender.
The reverse mortgage lender's biggest fear is a greater loan than value. Since this mortgage is a true negative equity mortgage the lender has to hedge against this event. FHA insurance is that hedge.
The upside to both the reverse and forward end is the FHA insurance allows the lender much more ability to lend more aggressively than they would with uninsured loans.
That's just a little something on FHA mortgage insurance. It is for the lender but the borrower does benefit from the lender in the form of higher loan to value and credit restrictions because the lender is insured against loss.
There exists an irony in that people perceive FHA mortgages to be mainly for first time home buyers and reverse mortgages for last time home buyers.
In either case these mortgages require the payment of an upfront mortgage insurance premium. That thing is expensive and people want to know why.
The word insurance invokes visions of physical items being monetarily covered against theft or damage.
Fha insurance sort of fools people. We see the money coming out of our pockets but it isn't actually directly for our benefit. In actuality the mortgage company is the recipient of the benefits.
Mortgage insurance exists to protect the lender against loss.
Foreclosure is the big problem for forward mortgages. FHA insurance protects lenders in this event.
Let's illustrate how this works with a real deal. Let's say the mortgage, at the time of foreclosure is $110,000 and the house is worth $100,000. Not an unusual situation, by the way.
What if the sale price is only $90,000. Now the lender is in the hole $20,000. The mortgage insurance covers the lender against this loss.
The reverse mortgage is protected by FHA in the event the value of the mortgage is actually greater than the value of the home. This is not foreclosure protection but it works about the same for the lender.
The reverse mortgage lender's biggest fear is a greater loan than value. Since this mortgage is a true negative equity mortgage the lender has to hedge against this event. FHA insurance is that hedge.
The upside to both the reverse and forward end is the FHA insurance allows the lender much more ability to lend more aggressively than they would with uninsured loans.
That's just a little something on FHA mortgage insurance. It is for the lender but the borrower does benefit from the lender in the form of higher loan to value and credit restrictions because the lender is insured against loss.
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