A reverse mortgage is a type of loan that allows homeowners aged 62 and older to convert part of their home equity into cash. Instead of making monthly mortgage payments, the borrower receives payments from the lender. The loan is repaid when the borrower sells the home, moves out permanently, or passes away.

The primary regulations governing reverse mortgages in the United States include the Home Equity Conversion Mortgage (HECM) program, which is insured by the Federal Housing Administration (FHA). Key regulations include borrower age requirements, counseling requirements, and limits on loan amounts. Additionally, lenders must adhere to strict disclosure requirements to ensure borrowers understand the terms and risks.

Consumer protections for reverse mortgage borrowers include mandatory counseling sessions with a HUD-approved counselor to ensure borrowers fully understand the loan terms and implications. There are also protections against foreclosure, provided borrowers meet loan obligations such as paying property taxes and homeowners insurance. Additionally, non-borrowing spouses may have protections to remain in the home after the borrowing spouse’s death.

Reverse mortgage lenders must comply with a range of federal and state regulations, including Truth in Lending Act (TILA) disclosures, FHA guidelines, and state-specific licensing requirements. Lenders must provide clear and accurate information about loan terms, fees, and risks, and they must ensure that all advertising and marketing materials are not misleading.

The HECM program offers several protections for borrowers, including a cap on the amount of fees that can be charged, a limit on the interest rate increases, and the requirement for independent counseling. The program also ensures that borrowers will never owe more than the home’s value at the time of repayment.

While reverse mortgages can provide financial relief, they also come with risks. These include high upfront costs, the potential depletion of home equity, and the risk of foreclosure if loan terms are not met, such as failing to pay property taxes and insurance. Borrowers should carefully consider their long-term financial needs and consult with a financial advisor before proceeding with a reverse mortgage.