Reverse Mortgages and Linked Securities: The Complete Guide to Risk, Pricing, and Regulation

CHAPTER 3

HECM Explained Reverse Mortgages Originated via the Home Equity Conversion Mortgage (HECM) Program

Boris Ziser Partner, Stroock & Stroock & Lavan LLP

 

Joseph R. Selvidio Associate, Stroock & Stroock & Lavan LLP

 

 

 

 

In the United States today, the number of retired citizens is growing significantly. According to census data, by 2010, over 40 million people will be over the age of 65, a number expected to more than double by 2040.¹ As this retirement community grows, the market for financial products that can provide opportunities to its members to supplement their personal wealth will grow as well. It is also likely that the demand for these kinds of financial products will grow even stronger in light of the difficult economic environment that began in 2008 and has plagued the financial markets in recent times.

One financial product with a potential for growth because of the options it provides to consumers is the reverse mortgage. The reverse mortgage is a tool allowing a homeowner to convert his or her home into cash without the need to meet financial credit checks such as FICO scores and, except in limited circumstances, without the need to repay the lender until the homeowner dies or permanently moves out of the home.²

Presently, over 90 percent of the reverse mortgage marketplace is comprised of loans originated through the Home Equity Conversion Mortgage (“HECM”) program.³ This chapter explains the details of HECM (pronounced, Heckem), including how the program ...