Appraised Value for Reverse Mortgage in Declining Market

Hi John,

If only we could!  Lenders will consider a short payoff only if that is in their best interest, meaning there is no equity in the home and taking the short payoff is less expensive than foreclosure.  In this case, even at the value of $270K and a mortgage of $177K, the borrower has 93K in equity in the home. It would be more to the lender's advantage to foreclose rather than negotiate.

This situation leaves the borrower almost $23K short because the reverse will only provide approximately $155K.  That is because, as you know, proceeds on a HECM are calculated with a formula that consists of 3 variables:  1) Age of younger borrower (in this case he is only 63) 2) home value or lending limit, whichever is lower, and 3) current expected interest rate.  Because this is a young borrower, he isn't getting enough to pay off his lien.  We are stuck between a rock and a hard place -- he can't pay the shortfall but he has too much equity to get his lender to negotiate.  I will continue to submit the loan to every lender I can until one takes the appraised value at face value.  Thank you for your comments!!!