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Home Equity Conversion Mortgage (HECM) Program (Section 255)

The Federal Housing Administration (FHA) mortgage insurance allows borrowers, who are at least 62 years of age, to convert the equity in their homes into a monthly stream of income or a line of credit.

Nature of Program: Reverse mortgages can provide a valuable financing alternative for qualified homeowners. Any lender authorized to make HUD-insured loans may originate reverse mortgages.

Borrowers may choose from among five payment options: (1) tenure, by which the borrower receives monthly payments from the lender for as long as the borrower lives and continues to occupy the home as a principal residence; (2) term, by which the borrower receives monthly payments for a fixed period selected by the borrower; (3) line of credit, by which the borrower can make withdrawals up to a maximum amount, at times and in amounts of the borrower's choosing; (4) modified tenure, by which the tenure option is combined with a line of credit; and (5) modified term, by which the term option is combined with a line of credit.

The borrower retains ownership of the property and may sell the home and move at any time, keeping the sales proceeds in excess of the mortgage balance. The borrower cannot be forced to sell the home to pay off the mortgage, even if the mortgage balance grows to exceed the value of the property. An FHA-insured reverse mortgage need not be repaid until the borrower moves, sells, or dies. When the loan is due and payable, if the loan exceeds the value of the property, the borrower (or the heirs) will owe no more than the value of the property.

Applicant Eligibility: All borrowers must be at least 62 years of age and occupy the property as a principal residence. Any existing lien on the property must be small enough to be paid off at settlement of the reverse mortgage.

Legal Authority: Section 255 of the National Housing Act (12 U.S.C. 1715z-20). Regulations are at 24 CFR parts 200 and 206.

Administering Office: Assistant Secretary for Housing-Federal Housing Commissioner, U.S. Department of Housing and Urban Development, Washington, DC 20410-8000.

Information Sources: Administering office and HUD field offices. On the Web

Current Status: Active.