Reverse Mortgage - where's the catch?

My dear husband has always been a proponent of critical thinking.  Being around him I've learned to systematically evaluate claims so that I can carefully separate fact from fiction.  And of course, growing up around my father I learned that good things come to those that work hard and you don't get something good for free.  Thus, when something looks too good to be true, I certainly know that it likely is - too good to be true.  Or is it?

This week, I had the privilege of sitting with one of my clients to evaluate whether a Reverse Mortgage would be the right tool for him and his wife to consider.  This nice man that has worked very hard all his life reminded me of a phrase that so many of us have engrained in our psyche - there is no free lunch.  So you can imagine his skepticism (and my own!) when we discussed a feature of the Reverse Mortgage: No Recourse. 

What exactly does that mean, no recourse?  It means that when the senior borrower is done living in the home as their primary residence they simply sell the home, payoff the mortgage balance with proceeds of the sale (as they would with a traditional forward mortgage) and put the check in their pocket as they move to their next home. But in the rare and unlikely event that there may not be enough value in the home to payoff the balance remaining on the Reverse Mortgage then there is no obligation on the part of the senior or their heirs to make up the difference on the amount owed.  The mortgage company will not ask the senior nor their heirs to liquidate other assets to satisfy the balance.  There is no obligation to the borrower nor their heirs to make up any amount still due after the home is sold.  There is no recourse to other assets the estate may have.  The other assets remain intact.

How is this possible?  It is a function of the FHA mortgage insurance premium (yes, the same type of FHA MIP that we see on traditional forward mortgages)  that is part of a Reverse Mortgage.  If an insufficient amount of equity remains to pay off the loan balance then a claim is made on the FHA Mortgage Insurance Premium to satisfy the difference.  It is with this insurance policy that the No Recourse feature is made possible.

There is no other loan type that we have that offers this safety feature to the client.  But truly, it is available to our senior borrowers with a Reverse Mortgage