New expert services for Servicing Oversight and Portfolio/Asset Management. Learn More.


If you’re new to the reverse mortgage industry, this glossary of industry terms is a great place to start.

Appraisal: A report that states an opinion on the value of a property based on its characteristics and the selling prices of similar properties in the area.

Closed End Line of Credit: A line of credit one which you can make prepayments, but those funds won’t be available for future use.

CMT: An acronym for Constant Maturity Treasury, an interest rate index commonly used for reverse mortgages.

Conditional Prepayment Rate (CPR): The annualized equivalent of SMM.

Counseling: A service provided by an independent third-party, typically approved by the U.S. Department of Housing and Urban Development, to make sure the borrower fully understands the reverse mortgage and reviews alternative options, prior to application. Mandatory for the HECM (HECM Anchor) program and in certain states for all types of reverse mortgages.

Crossover Loss: Losses that occur when a reverse mortgage loan balance exceeds the property value at the time the loan pays off.

Cutoff Date: The “as of” date for a loan or pool of loans. Usually expressed as the last day or the first day of the month. In an electronic loan file or “tape,” each field will show the value for each loan as of the cutoff date.  

Equity Sharing: A feature once offered in proprietary reverse mortgages that allowed a borrower to receive more funds, or pay a lower interest rate, in exchange for giving up a percentage of the home’s future value.

Expected Rate: The interest rate used to calculate the benefit to the borrower. For adjustable rate HECMs, (HECM Anchor) the Expected Rate is equal to the ten-year benchmark corresponding to the base index, as designated by FHA, plus the net margin. For fixed rate loans, the expected rate is the fixed rate itself.

Federal Housing Administration (FHA): A US government agency that insures mortgages made by private lenders to protect lenders against losses.

Forward Mortgage: Any mortgage where the borrower has a monthly or periodic mortgage payment obligation.

Forward Settlement Date: A trade that settles after the next record date. For example, if on May 15th, an HMBS (HMBS Anchor) certificate traded with a June 12th settlement; the buyer will not receive its first payment until July 20th because the first record date upon which the buyer will be holder of record will be June 30th.

HECM Mortgage-Backed Security (HMBS): A Ginnie Mae insured certificate backed by a pool of HECMs.

Home Equity Conversion Mortgage (HECM): An FHA-insured (FHA anchor) reverse mortgage.

Home Price Appreciation (HPA): The amount of price appreciation or depreciation which occurs for a given single-family property, or in a given pool of single-family properties. Typically expressed as an annual percentage.

Housing and Urban Development (HUD): A US department responsible for the Federal Housing Administration and mission regulation of Fannie Mae and Freddie Mac;

Initial Principal Limit: Amount of funds borrower is eligible to receive from a reverse mortgage before closing costs are deducted.

Interest Rate Types

  • Expected Interest Rate: The interest rate used to calculate the principal limit. For most HECMs (HECM Anchor) originated today it equals the 10-year CMT plus a margin.
  • Actual Interest Rate or Initial Interest Rate: The interest rate first charged on the loan beginning at closing; it equals one of the HUD-approved interest rate indices (1-month CMT,(CMT Anchor) 1-year CMT, or SOFR) plus a margin.
  • Variable Rate: An interest rate that adjusts after loan closing.
  • Fixed Rate: An interest rate that remains constant over the life of the loan.

 Interest Rate Structure

  • Index: Reverse mortgage interest rates are tied to multiple indexes, including CMT, LIBOR and SOFR.(CMT, LIBOR and SOFR Anchors)
  • Margin: An amount added to the Index for variable rate mortgages to determine both the Expected and Actual interest rates. The margin is determined by the loan investor.

LIBOR: An acronym for London InterBank Offer Rate, an interest rate index commonly used for reverse mortgages.

Line of Credit Growth Feature: If present, the line of credit increases over time according to the terms of the loan agreement.

Loan To Value (LTV): A percentage equal to the outstanding amount of the loan divided by the value of the underlying property.

Maturity Event: When any of these occur on a HECM (HECM anchor)loan (some non-HECM reverse mortgages may have different requirements):

  • the property is sold or transferred
  • the last remaining borrower dies
  • the property ceases to be the borrower’s principal residence
  • the borrower fails to occupy the property for more than 12 consecutive months
  • the borrower defaults under the terms of the mortgage or note.

Maximum Claim Amount: A proxy for home value calculated by HUD, (HUD Anchor) it is the lesser of a home’s appraised value or the maximum loan limit that can be insured by FHA.(FHA Anchor)

MIP (Mortgage Insurance Premium): A fee charged to HECM (HECM anchor) borrowers that is equal to a small percentage of the maximum claim amount, plus an annual premium thereafter on the loan balance. The MIP guarantees that if the lender goes out of business, FHA will step in and ensure the borrower has continued access to his or her loan funds and that the borrower will never owe more than the value of the ho(FHA anchor) me if the property is sold to pay back the reverse mortgage. This amount is set by FHA.

Monthly Service Fees: A fee charged by the loan servicer after closing for disbursing loan funds, maintaining loan records and sending statements.

Mortgage Service Rights (MSR): A contractual agreement in which the right to service an existing mortgage is sold by the original lender to another party.

Net Principal Limit: Amount of funds borrowers are eligible to receive at closing after loan costs have been deducted.

Non-Recourse Loan: A feature that limits the amount owed by the borrower, heirs or estate when the loan becomes due and payable to the appraised home value.

Open End Line of Credit: A line of credit structure that allows the borrower to withdraw funds, make payments back to the lender, and then have the ability to make subsequent withdrawals.

Origination Fee: Charged by the lender to cover expenses for originating the loan.

Prepayment Penalty: Due when paying off a reverse mortgage before the borrower permanently vacates the property. There is no penalty for paying all, or a portion, of the loan prematurely under the HECM (HECM anchor) program.

Payment Date (Bond Payment Date, Certificate Payment Date, and/or Distribution Date): The date upon which the holder of record receives payment. For GNMA IIs, including HMBS (HMBS Anchor), the Payment Date is the 20th of the month or the next succeeding business day.

Prepayment: When the loan balance is paid in full or part.

Prepayment Curve (PPC): A metric for HECMs (HECM anchor) measuring prepayment rates by loan age. A standard prepayment matrix found in many Ginnie Mae HMBS and HREMIC offering documents.

Principal Limit: The total loan proceeds available at closing. Equal to the allowable LTV ratio multiplied by the Maximum Claim Amount.

Proprietary Reverse Mortgage: Any non FHA-insured reverse mortgage. (FHA anchor)

Record Date: The date upon which ownership is determined for the next bond payment.  In mortgage bonds, it is typically the last business day of a month.

Recordation Tax: A special assessment for recording a mortgage lien. Typically paid at closing by the borrower.

Reverse Mortgage: A loan or line of credit secured against real estate, with no monthly payment obligation and an event-based maturity, typically for homeowners who have reached a minimum age requirement set by the lender.

Servicing Fee Set-Aside: An estimate of the present value of all future servicing costs, which is deducted from the Principal Limit, but not added to the loan balance.

Settlement Date: The date upon which a security trade settles, and cash is paid by the buyer to the seller in exchange for ownership in the security.

Single Monthly Mortality (SMM): A mortgage loan prepayment metric that denotes the percentage of loans paying off in a given month.

SOFR: An acronym for Secured Overnight Financing Rate, which has been designated to replace LIBOR (LIBOR anchor) for some lending products.

Subordinated Debt: A lien placed on the home behind the reverse mortgage.

T&I Default: A borrower defaults on real estate taxes and/or homeowner’s insurance. A HECM (HECM Anchor)  in T&I default is not eligible for assignment put option back to FHA. (FHA Anchor)

Tenure Payment Option: Fixed monthly loan advances for as long as a borrower lives in a home.

Term Payment Option: Fixed monthly loan advances for a specified period of time.

Title Insurance: A type of insurance policy that protects a homeowner or lender against financial loss from defects in title to real property and from the invalidity or unenforceability of mortgage liens. The cost for the policy is typically paid at closing by the borrower.

Total Annual Loan Cost (TALC): A summary of all of the costs associated with taking out a reverse mortgage, disclosed as a single annual average rate.

Unpaid Principal Balance (UPB): The portion of a loan at a certain point in time that has not yet been remitted to the lender.