A HECM reverse mortgage is non recourse.A HECM reverse mortgage is a non-recourse loan, which means the only asset that can be claimed to repay the loan is your home. If your home isn’t worth enough to pay off the entire balance, you’re not on the hook for the shortage. Any shortage is paid off by the FHA mutual mortgage insurance fund.

This non-recourse feature makes the HECM unique among residential home loans. Most residential mortgages, whether conventional, FHA, or VA, are full recourse loans. If you have a full recourse loan and your home’s value falls and isn’t worth enough to pay off your entire mortgage balance, you’re on the hook for the shortage. If you want to sell your home, you have to either pay the shortage out of pocket or negotiate a short sale (which usually comes with a big tax bill).

A HECM reverse mortgage doesn’t come with this problem; it’s a non-recourse loan. You’re not on the hook for the shortage if you owe more than your home is worth.

How a HECM can be non-recourse

The FHA mutual mortgage insurance fund (MMIF) is what makes it possible for the HECM to be non-recourse. Without the backing of the MMIF, it would likely be difficult for lenders to offer HECMs with the non-recourse feature at attractive interest rates.

The MMIF is very important for traditional “forward” FHA and HECM lending. Borrowers of both traditional FHA loans and HECM reverse mortgages pay a one-time mortgage insurance premium into the fund at loan closing (called IMIP in the case of the HECM). This fee is either paid out of pocket or rolled into the starting loan amount.

Borrowers also pay ongoing mortgage insurance premiums (called annual MIP in the case of the HECM). Traditional FHA borrowers pay the annual premiums as part of their monthly mortgage payment. HECM borrowers aren’t required to make mortgage payments (as long as program obligations are met, including the payment of property charges), so the annual fee is added to the loan balance over time.

The funds in the MMIF are used to protect lenders against loss in the following instances:

  • A traditional “forward” FHA mortgage borrower defaults and the home is foreclosed at a loss to the lender.
  • A reverse mortgage is settled up due to a maturity event and the home isn’t worth enough to pay off the entire loan balance. The MMIF funds are used to settle up the shortage so the borrower doesn’t have to.

The MMIF is fully backed by the United States Treasury, so it technically can never run out of money. The only time the fund has needed a cash injection was in 2013 when it ran short due to the ongoing fallout from the financial crisis.

Is a reverse mortgage “risky”?

It’s puzzling that many people still insist that HECM reverse mortgages are risky. How are they risky? No mortgage payments are required and the loan is non-recourse.

If you have a traditional “forward” mortgage, you’d better make your monthly payment or you lose your home. And if home values fall and you owe more than the home is worth, you’re on the hook for the shortage.

A reverse mortgage isn’t perfect for everybody, but it’s a great program for the right candidate. And it’s far less risky than a traditional mortgage for most seniors.

Check out our free reverse mortgage calculator

How much can you get from a reverse mortgage? Check out our free HECM reverse mortgage calculator. It's simple to use, fast, free, and no contact information is required. You can access the reverse mortgage calculator here. Our HECM for purchase calculator can be found here.

Updated for 2021: The Reverse Mortgage Revealed

The reverse mortgage is a fantastic financial tool, but it's not the perfect solution for everybody. Is it right (or wrong) for you?

Author Mike Roberts is the founder of and a successful reverse mortgage industry veteran. Writing in plain language, Roberts cuts through all the nonsense, rumors, and hype you may have heard about reverse mortgages. There are no sales pitches here!

This book is well-written, understandable, and packed with insights only an experienced professional can offer. You'll discover:

  • How a reverse mortgage really works.
  • Who should (and shouldn't) get a reverse mortgage.
  • Common myths and misconceptions.
  • Insider tips and tricks lenders don't tell you (and you likely won't find out anywhere else).
  • How to increase your payout & reduce closing costs (this alone is worth the cost of the book).
  • Pitfalls to avoid.
  • Why some applicants get approved and some don't.
  • How to finance a home purchase without a mortgage payment (yes, this is for real!).

Also included are detailed case studies based on real-life scenarios that tie key concepts and terms together. You'll see for yourself how a reverse mortgage can help you live a more enjoyable and financially secure retirement.

Available for Kindle or in paperback at Amazon. Click here to grab your copy now!