Claims Corner

Mortgages; Reverse Mortgages

HUD Secretary Requires Payoff Letters for Home Equity Conversion Mortgages

Reverse mortgages (also called Home Equity Conversion Mortgages) allow homeowners to convert the equity they have in their homes into payments from a lender. Reverse mortgages are utilized by senior citizens who have small mortgages or who owe nothing on their homes. The homeowner gives a reverse mortgage to a lender. The lender then typically makes payments to the homeowner on a monthly basis. It is also possible for the homeowner to have an available line of credit as their reverse mortgage. The mortgage is paid off when the property is no longer owned by the homeowner. Many reverse mortgages are insured by the Department of Housing and Urban Development (HUD). The term applied to reverse mortgages by HUD is Home Equity Conversion Mortgage.

What is the effect of having a reverse mortgage insured by HUD? In the event that a lender does not make the monthly payments to the homeowner, HUD will make the payments. In addition, if the property is sold by the homeowner and the value of the property is less than the amount due on the reverse mortgage, HUD will pay the difference to the lender. For more information see the Federal Housing Administration website.

How do you know if a reverse mortgage is insured by HUD? If HUD has insured a reverse mortgage, there should be a home equity conversion second mortgage that is recorded after the reverse mortgage. The second mortgage will be for the same amount as the first home equity conversion mortgage, but the Secretary of Housing and Urban Development will be the lender.

In the majority of transactions there will be no money owed to HUD because HUD will make payments only if the first lender has failed to do so. However, it is possible that there will be an amount due to HUD. Any sums owing to HUD will not necessarily be included in a payoff letter from the first lender. A separate payoff letter must be obtained from the servicer who is servicing the reverse mortgage for HUD.

If you have any questions, contact the ATG Underwriting Department, legal@atgf.com, 217.403.0020, or 312.752.1990.

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[Last update: 3-2-09]