Reverse Mortgage

A couple of corrections are necessary.  FNMA does not guarantee their version of the  reverse mortgage called the homekeeper.  The rate on the FNMA version usually is based on CD rates and runs about 2.5% higher than the standard - the FHA HECM which stands for Home Equity Conversion Mortgage.  More than likely, FNMA uses part of this higher rate to buy some post closing insurance on the loans.  The FHA version does carry MIP which does two things for the borrower: 1. it allows the mortgage to be a non-recourse mortgage which means that the borrower will not be responsible for that portion owed in excess of the value of the collateral real estate, and 2. it backs up the lender for the borrower's sake in that if the lender or serviser go out of business, HUD steps in and manages the mortgage.  The FHA version accounts for about 90% of all reverse mortgages originated today.

The borrower does get counseling from an unbiased third party in addition to the advise a trained professional will give him/her.  Unfortunately, most attorney's and real estate agents do not know enough about this product to be counted on for expert advise.

The costs are high and always have to be compared to the benefits that the senior borrower enjoys, namely enjoying their equity without selling or moving out of their home.  the lender is only due what is owed them and does not share in any of the equity over that amount.  The standard rate currently is usually the 1 year T-Bill plus a margin of 1.5.

the costs, in Florida, are higher due to the title insurance and the doc stamps and intangible tax being based on 1.5 times the value of the property instead of the amount of the loan.  It is after all a neg am product so the title insurance has to be high enough to protect the lender - not really sure why the intangible tax and doc stamps have to be that high though.

the MIP and the origination fee are capped at 2% of the value and unlike a forward mortgage, the 2% is usually all the originator can get in that they are not allowed to charge processing and other so-called junk fees.

hope this helps you understand this a little bit more