FHA mortgage payments include pro-rated amounts for property taxes, hazard insurance, and mortgage insurance premiums, but borrowers with FHA reverse mortgages are responsible for paying these expenses.
FHA Concern Grows Over Tax, Insurance Delinquencies on Reverse Mortgages
FHA reverse mortgages, also called home equity conversion mortgages (HECM), provide homeowners 62 and over with a method for paying off existing mortgages and drawing on remaining home equity. Intended as a way for seniors to eliminate mortgage payments and improve cash flow, FHA is finding new risks associated with reverse mortgage borrowers failing to pay property taxes and hazard insurance.
FHA Loans: Property Taxes and Hazard Insurance--What's the Big Deal?
FHA insures mortgage lenders against losses associated with its loan programs: failing to pay taxing authorities can result in liens against your home. It can be sold for non-payment of property taxes. Allowing hazard insurance to lapse puts FHA lenders at risk of losing their collateral if it's damaged by fire or other disaster. The terms of your reverse mortgage require keeping taxes and insurance payments current; violating your mortgage terms can lead to foreclosure.
FHA and Local Governments Face Financial Challenges
FHA has traditionally been more lenient with reverse mortgage borrowers, but current economic conditions coupled with FHA reserves falling below mandatory levels casts a spotlight on the potential for more liability if reverse mortgage borrowers don't keep their taxes and insurance up to date.
FHA Reverse Mortgages: Tips for Paying Taxes and Insurance
- Call your insurance carrier and local taxing authority to determine the present status of your home insurance and property taxes and payment due dates. Write these dates down and set up payment reminders several days ahead of the due dates.
- Budget for these expenses. Arrange to set aside enough for paying these expenses as they become due. Hazard insurance is usually renewed annually, and property taxes may be paid two to four times per year. Save 10 to 20% more than you think you'll need; this can cover unexpected premium hikes or supplemental property tax assessments.
If you or a family member need help with managing an FHA reverse mortgage, please contact a HUD approved housing counselor for assistance.
Karen Lawson is a freelance writer with extensive experience in mortgage banking and home loan loss mitigation programs. She holds BA and MA degrees in English from the University of Nevada, Reno.