Reverse Mortgage

Reverse Mortgage — The most common form is the Home Equity Conversion Mortgage (HECM), which is insured by the Federal Housing Administration. Borrowers must be at least 62 years old, occupy the property as a primary residence, and complete HUD-approved counseling. Unlike a traditional mortgage where the borrower builds equity over time, a reverse mortgage draws down equity — the loan balance grows as interest accrues and the homeowner's equity stake shrinks.

Reverse mortgage notes occupy a specialized niche in the secondary market. They are less commonly traded individually by private note investors due to the complexity of FHA insurance requirements, servicing regulations, and the unique trigger events that cause the loan to mature. However, pools of reverse mortgage notes do trade among institutional buyers, and understanding the product is important for any investor encountering properties encumbered by these liens during due diligence.