Since Congress created the FHA Reverse Mortgage in 1989, many Reverse Mortgage safeguards have been put in place to protect Senior Homeowners. Counseling by an independent 3rd party is required and typically takes about an hour and is done over the phone.
A “senior friendly” financial assessment is also required, to make sure that the senior homeowner has the ability to continue to pay the property taxes, homeowner’s insurance, HOA dues and can afford to maintain the home. For a spouse who is not 62 at the time the reverse mortgage is originated or who is not named on title to the home, these “non-borrowing spouses” are protected by allowing them to stay in the home - with no Principal and Interest payment - after the borrower passes or moves into a healthcare facility for more than 12 consecutive months.
Since a reverse mortgage is a “non-recourse loan”, borrowers have no personal liability for the loan, so responsibility for repayment is transferred from the borrower to the home. Reverse mortgages insured by FHA, that have a line of credit term or tenure payment, cannot be frozen or canceled as long as the borrowers: live in the home as their primary residence, pay their property taxes, homeowner’s insurance and homeowners association dues on time and maintain the home. There is never a pre-payment penalty on a reverse mortgage, and homeowners are free to refinance or sell at any time they choose.
It’s important to note, that reverse mortgage lenders are strictly regulated by the Consumer Financial Protection Bureau and by the Department of Housing and Urban Development and many commit to the code of ethics of the National Reverse Mortgage Lenders Association.