Forward mortgages and reverse mortgages are both FHA insured. In either case FHA plays a role throughout the marketplace.
Ironically, FHA insured mortgages are considered a first time home buyer program and they also serve as a last time buy program through the reverse mortgage end.
In either case these mortgages require the payment of an upfront mortgage insurance premium. That thing is expensive and people want to know why.
When most people think of insurance they think of something they own that is actually covered against loss.
So, we expect FHA insurance to act accordingly. Well, FHA insurance really isn't for the homeowner. The home owner pays for it, but the lender gets the benefit.
The lender's protection against monetary loss is what FHA insurance is in existence to accomplish.
In the case of forward mortgages it is to hedge the lender's losses in the event of a foreclosure.
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.
Perhaps the property sells for less than value at the foreclosure sale. It sells for 90 thousand. Now the lender will lose at minimum 20 thousand. This is where mortgage insurance comes in.
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 problem for the lender in the reverse mortgage industry is the constant accrual of interest on the mortgages. If market conditions are drastic or the borrower lives to 100 the lender could have a problem.
Indirectly, consumers benefit by paying the high upfront mortgage insurance fee. The lender is now free to offer the consumer much more aggressive mortgages than non-FHA loans.
People will continue to complain about high fees regarding fha forward and reverse mortgages, but they get benefits they'd never receive without this mortgage insurance, in the form of light credit checks and high LTVs.
Ironically, FHA insured mortgages are considered a first time home buyer program and they also serve as a last time buy program through the reverse mortgage end.
In either case these mortgages require the payment of an upfront mortgage insurance premium. That thing is expensive and people want to know why.
When most people think of insurance they think of something they own that is actually covered against loss.
So, we expect FHA insurance to act accordingly. Well, FHA insurance really isn't for the homeowner. The home owner pays for it, but the lender gets the benefit.
The lender's protection against monetary loss is what FHA insurance is in existence to accomplish.
In the case of forward mortgages it is to hedge the lender's losses in the event of a foreclosure.
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.
Perhaps the property sells for less than value at the foreclosure sale. It sells for 90 thousand. Now the lender will lose at minimum 20 thousand. This is where mortgage insurance comes in.
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 problem for the lender in the reverse mortgage industry is the constant accrual of interest on the mortgages. If market conditions are drastic or the borrower lives to 100 the lender could have a problem.
Indirectly, consumers benefit by paying the high upfront mortgage insurance fee. The lender is now free to offer the consumer much more aggressive mortgages than non-FHA loans.
People will continue to complain about high fees regarding fha forward and reverse mortgages, but they get benefits they'd never receive without this mortgage insurance, in the form of light credit checks and high LTVs.
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