Reverse Mortgage Alert for RMF HECM Loan Servicing Borrowers

 A major reverse mortgage lender, Reverse Mortgage Funding, RMF filed for protection under Chapter 11 of the U.S. Bankruptcy Code in the District of Delaware on November 30,2022.
RMF maintains a large portfolio of FHA-insured reverse mortgages, named the Home Equity Conversion Mortgage (HECM). Its loan servicer, Reverse Mortgage Serving Department is responsible for distributing monthly payments and responding to requests for draws on the HECM Line of Credit.

The RMF servicer contacted its book of business with the following notice:

Accordingly, the Company is legally required to obtain a court order in order to process loan payments, and expects to do so on Monday, December 5, 2022 if not the Friday before. Once the court order is granted, RMF will immediately remit those funds to customers so their requests can be received Friday, December 2, or at the latest, Tuesday, December 6.
Please know with confidence that if your loan is in good standing, you will receive payment. Your loans are FHA insured, and your draw request is
100% insured by the FHA.

If You Have Concerns
The mailing address for the RMF servicer is
P.O. Box 40087
Lansing MI 48901

Your monthly servicing statement will indicate a phone number to call, and your loan number.

Loan and Sale of RMF Servicing
On Dec. 5, RMF secured a $13 million loan to meet these obligations. Reportedly it is in negotiation with another lender to sell the servicing portfolio and resume obligations to make payments and draws. 

The mortgage industry is sensitive to interest rate fluctuation and other macro-economic factors. The FHA-insured reverse mortgage is designed to protect borrowers against a lender’s inability to make payments or draws. Although there appears to be a delay in meeting this obligation on the part of the RMF servicer, ultimately these loans are backed by the full faith and credit of the United States government. 


The 100th United States Congress passed the 1987 Housing and Community Development Act. Part of its mandate was to create a reverse mortgage to “enable elderly homeowners to convert equity in their home to monthly streams of income and/or lines of credit.” 1

Since its inception in 1988, the Home Equity Conversion Mortgage (HECM) reverse mortgage is insured by the Federal Housing Authority (FHA). The reverse mortgage differs from the traditional mortgage “which is repaid in periodic payments, (while) a reverse mortgage is repaid in one payment, after the death of the borrower, or when the borrower no longer occupies the property as a principal residence.”1 Most importantly, the reverse mortgage is a non-recourse loan. “This means that the HECM borrower (or his or her estate) will never owe more than the loan balance or the value of the property, whichever is less; and no assets other than the home must be used to repay the debt.”1

Like any insurance program, FHA insurance is funded by premiums. Reverse mortgage homeowners incur equity cost for both an upfront FHA premium (MIP) and an ongoing monthly assessment.

Product Evolution

In the last three decades, the non-recourse benefit has been augmented with additional consumer safeguards. Protections for younger spouses, limitations on the amount and pace in drawing equity, and underwriting the homeowner’s ability to meet the tax and insurance obligations have strengthened the program. The last of these is critical to the stability of the FHA insurance fund.

Once in the red, in part due to the frothy mortgage conditions along with inadequate underwriting in the Great Recession, “the financial health of the Home Equity Conversion Mortgage (insurance) portfolio dramatically improved in fiscal year 2022, ending September 30 with stand-alone capital ratio of 22.75 percent, compared to 6.08 percent the previous year, the Department of Housing and Urban Development announced this week in its 2022 Annual Report to Congress. Put another way, the capital levels for the HECM portfolio improved by $11.3 billion over the past year from a positive $3.8 billion in FY2021 to a positive $15.1 billion in FY2022.”2

Because the house itself stands as sole collateral for repayment, rising home values positively affect the insurance fund stability. If the home value at the end of the reverse mortgage is equal or greater than the loan balance, there is no claim against the insurance fund. (Note that any remaining equity remains in the control of the borrower or his estate.)

Because the homeowner must contribute to the MIP insurance fund, the lender’s recovery from the borrower is limited to the value of the home. There will be no deficiency judgment taken against the borrower or the estate because there is no personal liability for payment of the loan balance. 

Current Environment

With rising home values and low interest rates, many existing reverse mortgage holders had a strong incentive to go to the well again with a HECM to HECM refinance. Some lenders built a large percentage of their business on already existing customers who chose to get more money out of their increasingly valuable asset. This maneuver caused existing loans to pay off earlier than expected, causing unease among the investors who hold the securitized mortgage bonds: 

While refinances have provided a boom in overall HECM volume investors are less than enthused.  Not surprising considering payoffs of HMBS (HECM Mortgage Backed Securities) exceeded $1 billion for 10 months in a row. New View Advisors noted, “December 2021 came close in both dollar amount and speed: $1.28 billion, representing a 24% annual payoff rate”. Faster prepayment speeds of existing securitized HECMs, they noted, means investors will see smaller yields.3

The cycle of boom or bust in the mortgage business persists. In 2022, rising interest rates are affecting all mortgage lenders. Mortgage lenders across the country are consolidating, closing, and/or laying off staff. 4

There is a particular risk of rising interest rates for the homeowner seeking a reverse mortgage. As interest rates increase, his access to equity declines. The result can be that many homeowners are shut out of the reverse mortgage market because their existing liens exceed the amount of benefit available. The number of new reverse mortgage loans originated has dropped.5


  1. 1987 Housing and Community Development Act
  2. Health of HECM Program Improves in FY2022
  3. Is the HECM Refi Boom Ending?
  4. A Long List of Mortgage Layoffs, Mergers, and Closures
  5. Reverse mortgage volume, HMBS issuance fell further in November

A Closer Look at Home Equity in Financial Planning

Numbers Indicate How Financial Planners Discuss Reverse Mortgages

In his white paper “Home Equity in Financial Planning,” Craig Lemoine, executive director of the Academy for Home Equity in Financial Planning at The University of Illinois at Urbana-Champaign, illustrates the need for home equity release programs. “The Academy of Home Equity in Financial Planning’s mission is to develop and advance, for retirees and their financial advisers, a rational and objective understanding of the role that housing wealth can play in prudent planning for retirement income,” says the 2020 report, which included detailed surveys of financial professionals. Lemoine also is an associate clinical professor of financial planning at the university. Here is a closer look at some of his findings that, in some cases, compare how a Certified Financial Planner operates compared to a non-CFP.


Credit and Home Equity Model Language for Financial Services Firms

The Academy for Home Equity in Financial Planning at the University of Illinois at Urbana-Champaign believes that certain retirees can have a more secure retirement when home equity is used prudently. 

Book on table

The average pre-retiree and retiree in the U.S. today have under-saved and risk running out of money in retirement. According to the Census Bureau, home equity represents roughly two-thirds of the net worth of the average American age 65 and over.  A reverse mortgage could be an appropriate solution for those who want to stay in their homes and would prefer more cash flow to pay bills or unexpected expenses.  Using housing wealth during market downturns can also improve financial outcomes in retirement by protecting investment portfolios from sequence of returns risk.  Prudent use of home equity in a holistic retirement plan – where all the client’s assets as considered for their retirement security – helps advisors serve their client’s best interests and the client’s need for retirement savings to last a lifetime. 

 Many broker-dealers and financial service firms maintain that a reverse mortgage is appropriate only as a last resort once all other available assets are depleted. There is no evidence that this is the case.  Some firms and advisors are not aware that in May 2014, FINRA changed its guidance about the use of home equity for retirement and no longer describes reverse mortgages as a “loan of last resort.”  

Several broker-dealers and other advisory firms recently discontinued their prohibition on reverse mortgages and adopted more reflective compliance policies around the current state of the role of reverse mortgages and home equity. They believe their trusted advisors should understand how the product works, its potential solutions, and advise and educate clients effectively to make decisions best suited to their needs and circumstances. They believe that if their advisors are restricted from advising or educating clients on the topic of reverse mortgages and retirement housing planning, they are not serving their clients’ best interests.  

It remains up to each compliance department, company, and advisor to set their policies. However, if an advisor is engaged in financial planning and a client wants to consider their plan with and without a reverse mortgage, that advisor should provide the resources to do so.  According to FINRA, “Home equity is often a homeowner’s most valuable asset and most precious source of retirement security. Reverse mortgages can be a useful tool for certain older Americans who might otherwise face losing their homes. But homeowners should consider all the risks and explore all of their options before taking out a reverse mortgage, and even then, should use the loan funds wisely.”

Today, many firms’ policies are out of date and limit clients’ ability to get education or advice from their trusted advisor about reverse mortgages.  The Academy of Home Equity in Financial Planning has reviewed several broker-dealers and advisory firms’ compliance policies. We offer the following Model Language currently being used by RIAs, broker-dealers, and other advisory firms to help you create or modify existing policies regarding reverse mortgages when updating or replacing existing guidance provided by your firm.

Proposed Guidance on Reverse Mortgage Compliance Policies 

A reverse mortgage is a non-recourse loan secured by the home, in which monthly principal and interest payments are not required. Unpaid interest accrues on the loan balance and compounds. The loan proceeds are available as a lump sum (often used to refinance a current mortgage), a monthly payment stream, or a Line of Credit, or a combination.

Advisors and firms may discuss the benefits and drawbacks of a reverse mortgage with clients and provide approved educational materials on the topic. 

Advisors are prohibited from soliciting, recommending, or advising a client to use reverse mortgage proceeds to fund securities or insurance products. If a client indicates that he has proceeds from a reverse mortgage for investing, contact Compliance immediately. The solicitation (sale) of a reverse mortgage is a prohibited activity at the firm.

For an advisor or registered representative to advise a client to engage in a reverse mortgage to improve their retirement income outcomes or other stated financial planning objectives, the client must have signed a financial planning agreement. If a RRs/IARs decides to recommend a reverse mortgage product, they must recommend at least three FHA-approved reverse mortgage lenders. 

Any conflicts of interest must be disclosed in writing to the client as it relates to the recommendation of any mortgage product, including a reverse mortgage. 

RRs/IARs are required to provide a client with the National Council on Aging (NCOA) HUD-approved official reverse mortgage consumer booklet when the client requests information about reverse mortgages. 

More than 90% of reverse mortgages in use are the Home Equity Conversion Mortgage (HECM) and are administered by the Federal Housing Administration (FHA). Loan terms are strictly regulated by FHA and the loan is non-recourse, meaning that neither the homeowner nor his estate can be held liable for a loan amount beyond the value of the house. The loan, even in the credit line format, cannot be arbitrarily canceled, frozen, or reduced by the lender. 

The safeguards inherent in the HECM are insured by FHA through borrower premiums that accrue on the loan amount.

RRs/IARs may discuss, model, and recommend a HECM in a financial plan if it is advisable for the client based upon the totality of the client’s facts and circumstances and in light of applicable suitability and best interest standards.

RRs/IARs are permitted to assist a client through the reverse mortgage transaction process, helping to collect paperwork and attending meetings. However, while RR/IARs can attend the client’s meeting(s) with the reverse mortgage lender, they must not be an active participant in the meeting.


What is a Reverse Mortgage?

A reverse mortgage is an interest-bearing loan secured by the home.  The most used reverse mortgage is the FHA-insured Home Equity Conversion Mortgage (HECM). To be eligible for the HECM, one homeowner must be 62. Younger spouses, known as “non-borrowing spouses” are allowed but benefits are reduced. Some lenders offer private reverse mortgages to individuals as young as age 60.

Like a home equity loan, a reverse mortgage allows you to convert your home equity to cash that you can use for any purpose. Unlike other home loans, however, homeowners are not required to make monthly interest or principal payments during the life of the loan. However, borrowers can choose to make voluntary payments to principal or interest to help manage the cost of the loan. Unpaid interest is added to the loan balance, which is why reverse mortgages are often called “rising debt” loans. 

The HECM reverse mortgage loan typically only becomes due when you die, sell your home to move, or otherwise leave your home for more than 12 months—for instance, if a health issue requires the last remaining homeowner to enter a nursing home. (There are special provisions for non-borrowing spouses when the borrowing spouse exits the home that must be considered.)

The loan is due when the last homeowner is no longer using the home as a principal residence. Snowbirds are allowed.  When the loan is terminated, you or your heirs must repay the loan which consists of draws, compound interest, FHA insurance premiums, and servicing fees, if any.  The loan can be satisfied through the sale of the home, refinancing the loan, or payment from other assets, the same as most options available with traditional loans.

Because interest will have been accruing during the life of the loan, you will likely owe more than you borrowed—and if home values have fallen or you live longer than expected, the loan balance could exceed the home value.  But since reverse mortgages are non-recourse loans, the worst that will happen is that you or your heirs will receive nothing from the sale of your house because the full amount of the sale proceeds went to repay the loan. The lenders cannot go after any other assets that you or your heirs own. For further information, read FINRA’s investor alert on reverse mortgages here.

Lenders are prohibited from arbitrarily canceling, freezing, or reducing the HECM loan benefits.

Your financial advisors can help determine what is in your best interest when it comes to financial planning and available strategies or products. Lending strategies, mortgages, and reverse mortgages can play an important part in your retirement income planning.

How well do we Reverse Mortgage? How financial planners use home equity and credit tools


Title page of white paper

The Academy for Home Equity in Financial Planning took a deep dive into how financial planners work with and understand credit tools. This white paper is the result of a Spring 2020 survey of financial planners, insurance agents and registered representatives. The results shed light on how financial planners make credit recommendations, and how education enhances usage of credit products.

Download the Survey of Financial Professionals: Credit and Home Equity White Paper.

Reverse Mortgages Can Help House-Rich Seniors Free Up Cash for Retirement. Here’s How They Work.

By Neal Templin on Dec. 14, 2019

Looking to free up $4 million to fund your retirement or pay off your mortgage?

Logo for Barron's

If you’re a senior with serious digs in places like California or the New York City area or other markets where many homeowners are house-rich and cash-poor, you might be able to secure such funds with only your home. The market for jumbo reverse mortgages has come back to life.

Reverse mortgages, in which retirees tap the equity in their homes through mortgages that don’t have to be paid as long as they live there, were long regarded as a last resort. Then financial experts began publishing research several years ago showing that the strategic use of reverse mortgages could help retirement portfolios better survive down markets or delay the claiming of Social Security benefits.

You may find the full article here.

Reversing the Conventional Wisdom: Using Home Equity to Supplement Retirement Income

by Barry H. Sacks, J.D., Ph.D., and Stephen R. Sacks, Ph.D.

Figure 1: Cash flow survival propability chart

This paper examines three strategies for using home equity, in the form of a reverse mortgage credit line, to increase the safe maximum initial rate of retirement income withdrawals.

These strategies are:

  1. the conventional, passive strategy of using the reverse mortgage as a last resort after exhausting the securities portfolio; and two active strategies
  2. a coordinated strategy under which the credit line is drawn upon according to an algorithm designed to maximize portfolio recovery after negative investment returns,
  3. drawing upon the reverse mortgage credit line first, until exhausted.

Full paper here.