FHA insured mortgages are now a staple to both the forward market and the reverse mortgage market.
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.
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 prime objective of FHA insurance is the protection of the lender.
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.
Fha mortgage insurance works a bit differently on reverse mortgages but with the exact same outcome for the lender. Reverse mortgages are protected against more being owed on the mortgage than the home is worth.
The reverse mortgage lender's biggest fear is a greater loan than value. Since this mortgage is a true negative equity mortgage the lender has to hedge against this event. FHA insurance is that hedge.
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. - 15224
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.
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 prime objective of FHA insurance is the protection of the lender.
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.
Fha mortgage insurance works a bit differently on reverse mortgages but with the exact same outcome for the lender. Reverse mortgages are protected against more being owed on the mortgage than the home is worth.
The reverse mortgage lender's biggest fear is a greater loan than value. Since this mortgage is a true negative equity mortgage the lender has to hedge against this event. FHA insurance is that hedge.
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. - 15224
