What is a Non-Recourse reverse mortgage?

The general public often misunderstands the Non-Recourse feature of the reverse mortgage.  It has been the topic of a recent lawsuit between AARP and HUD over the interpretation and implementation of it.

A Non-Recourse reverse mortgage means that a borrower can never owe more than their home is worth at the maturity of their reverse mortgage loan.  What does this mean, and how does this benefit the consumer?  I will give you an example of how advantageous this product feature can be.

ARLO teaching reverse mortgages and non-recourse

An example of a non-recourse protection

For Example, a 66-year-old homeowner with a $500,000 home currently qualifies for $321,000 in available funds on the Fixed-Rate Reverse Mortgage product based on today’s parameters.

Over the life of this Reverse Mortgage, the homeowner’s balance will increase.  After 20 years of interest accrual and the homeowner enjoying being payment-free, the balance could exceed $1,000,000.


Their home may have appreciated in that time; it could have stayed the same or even decreased in a possible down real estate market.

The non-recourse feature of the reverse mortgage guarantees that the maximum amount owed on this reverse mortgage at this 20-year mark, if the homeowner were to have passed away, would be whatever the home appraises for in year 20.

Suppose the home appraises for more than $1,000,000, for example.  In that case, the heirs to the property can either sell the property to pay off the reverse mortgage and take the proceeds as inheritance, or they can choose to refinance the reverse mortgage with another loan to pay off the balance and keep the home.

The choice is entirely up to the heirs of the property.  In a worst-case scenario, let us assume that the property was only worth $500,000 in year 20 when the reverse mortgage borrower passed away.

Under this scenario, the heirs to the property can choose to sell the property, refinance it, or wash their hands of the property completely and leave it to the bank.

Either way, the maximum amount owed is $500,000, and the Lien Holder cannot come after the estate for the difference between the accrued balance and the property’s current value.

In this case, HUD would guarantee the lender’s loss on the loan because the reverse mortgage is a Federally Insured Program.

Amortization example on interest owed


HUD issued Mortgagee Letter 2008-38, which clarified and changed their position on interpreting and implementing the Non-Recourse feature of the reverse mortgage program.

This is where the lawsuit from AARP comes into play

Before this Mortgagee Letter in 2008, the Non-Recourse feature applied to any circumstance involving a maturity event on a reverse mortgage.

When a reverse mortgage loan was deemed due and payable because of a “Maturity Event,” the Non-Recourse feature was in place no matter what the heirs chose to do with the property.

This means that whether the heirs chose to sell the home or refinance the reverse mortgage and keep the property, the max that could be owed to the lender was what the home appraised for then.

However, Mortgagee Letter 2008-38 stated that this would only apply to a bona-fide sale transaction where the heirs or the bank were selling the property to a 3rd party home purchaser.

This prevented the heirs from having the option of refinancing the reverse mortgage with a new loan or coming up with the required funds to pay off the reverse mortgage based on the home’s value at maturity.

For example, if the home appraised at $500,000 and the balance owed on the reverse mortgage was $600,000, the heirs would have to come up with $600,000 if they wanted to keep the home.

This brings me back to the AARP lawsuit.  AARP’s lawsuit against HUD was to eliminate this change to how the Non-Recourse feature was interpreted and implemented for reverse mortgage loans.  Mortgagee Letter 2011-16 rescinded Mortgagee Letter 2008-38, and HUD has now re-imposed the original Non-Recourse policy.

All homeowners who obtain a Federally Insured reverse mortgage enjoy this peace of mind.

No matter how long someone has a reverse mortgage on their home and how much interest accrues on their loan while enjoying no monthly mortgage payments, they will never be “personally” obligated for the loan’s balance.  The individual’s property is the sole collateral for the reverse mortgage loan.

Top FAQs


What happens if the reverse mortgage balance is higher than the property value?

The mortgage balance exceeding the property value does not affect the reverse mortgage.  If you are still living in your property and maintaining taxes and insurance, etc., your loan is still in good standing, and any funds available in your line of credit can be advanced.  If the last surviving borrower permanently leaves the home when the balance exceeds the property value, the estate is not responsible for any difference.  The loan is non-recourse, meaning you can never owe more than the property’s value.  On a Home Equity Conversion Mortgage (HECM), the mortgage insurance fund would cover any loss when the property is sold.

What happens if I live beyond 100 years old?

Nothing happens on a reverse mortgage regarding reaching a specific age.  Many people ask about this because the actuarial tables for life expectancy and loan to values for a reverse mortgage stop at age 99.  A reverse mortgage loan remains in good standing if you occupy the property as your primary residence, pay the property taxes and homeowners insurance on time, and maintain the property.

If I borrow too much, can the bank/servicer go after my heirs or other assets?

The reverse mortgage is a non-recourse loan, so borrowing too much is impossible.  The only security the lender has and from which the lender may seek repayment for the obligation is the house.  They cannot look to your heirs or your estate for additional repayment.

How do you get out of a mortgage that is upside down?

There is no benefit to voluntarily leaving a home early that is upside-down in value.  You can stay in the house regardless of the shortfall, but when you pass or must leave the home due to the need for assisted living, etc., you must inform the lender that you will be vacating.   Your heirs can pay off the debt at 95% of the home’s value if they wish to keep the property, but if not, you can deed the home back to the bank if the title is clear, or the bank will initiate a foreclosure.  Either way, the lender cannot seek repayment from any other assets.

If I do a deed in lieu of foreclosure on a reverse mortgage, will it ruin my credit?

Most of the time, a Deed in Lieu of Foreclosure is done at the end of the loan when borrowers enter assisted living and credit is no longer a facto.   Lenders don’t even report reverse mortgages to credit repositories.  However, if you do a Deed in Lieu of foreclosure early simply because you no longer wish to live in your location and then seek other financing on another property later, there is no way to determine how a new lender would look at that later.

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