Forward mortgages and reverse mortgages are both FHA insured. In either case FHA plays a role throughout the marketplace.
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.
No matter whether it is a reverse or forward FHA requires payment of an initial mortgage insurance fee. This fee is always quite pricey and consumers want to know the purpose.
When most people think of insurance they think of something they own that is actually covered against loss.
Does FHA mortgage insurance work this way? Absolutely not. As consumers we pay for it, but it is the lender which reaps the rewards. It may not be fair but it is what it is.
The lender's protection against monetary loss is what FHA insurance is in existence to accomplish.
Mortgage companies offering forward mortgages are protected against monetary losses in the event of foreclosure.
Example: The home is worth $100,000 and the loan is $95,000. At the foreclosure sale, after months of non-payment and accrual of interest and fees the loan can be $110,000.
If the sale price at foreclosure is 90k the lender loses at least 20k (110k mortgage minus 90k sale price). FHA insurance financially protects the lender in this case.
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.
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.
Yes, the mortgage insurance helps the lender against financial loss, but the borrower receives benefits in terms of very low down mortgages or high LTV reverse mortgages and very liberal credit requirements.
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.
No matter whether it is a reverse or forward FHA requires payment of an initial mortgage insurance fee. This fee is always quite pricey and consumers want to know the purpose.
When most people think of insurance they think of something they own that is actually covered against loss.
Does FHA mortgage insurance work this way? Absolutely not. As consumers we pay for it, but it is the lender which reaps the rewards. It may not be fair but it is what it is.
The lender's protection against monetary loss is what FHA insurance is in existence to accomplish.
Mortgage companies offering forward mortgages are protected against monetary losses in the event of foreclosure.
Example: The home is worth $100,000 and the loan is $95,000. At the foreclosure sale, after months of non-payment and accrual of interest and fees the loan can be $110,000.
If the sale price at foreclosure is 90k the lender loses at least 20k (110k mortgage minus 90k sale price). FHA insurance financially protects the lender in this case.
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.
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.
Yes, the mortgage insurance helps the lender against financial loss, but the borrower receives benefits in terms of very low down mortgages or high LTV reverse mortgages and very liberal credit requirements.
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