Seniors Going In Reverse
November 6, 2008
Have you seen Robert Wagner recently? Chances are you have and he’s been talking about reverse mortgages. Reverse mortgages have been touted as a solution for cash strapped seniors allowing them to keep and live in their home while still enjoying a comfortable lifestyle. Comfort has lately taken a back seat to surviving the current economic chaos.
Reverse mortgages can help seniors weather some financial disruptions. On November 1, lower origination fees and higher loan limits were introduced on Home Equity Conversion Mortgages (HECMs), the federally insured reverse mortgage program. HECMs account for most (99 percent) of the reverse mortgages being made today although only an estimated 1 percent of those eligible for the program are participating, according to the Christian Science Monitor.
With traditional mortgage lenders in serious trouble, property and home values tumbling and the stock market unlikely to reclaim the heights of even 2007, seniors are increasingly finding themselves in financial difficulties. According to report “Retirement Security or Insecurity? The Experience of Workers Aged 45 and Older” from AARP, 58 percent of those surveyed did not think they were saving enough for retirement. Eighty-three percent of those who don’t think they are saving enough for retirement indicate that after paying bills there isn’t enough money left over to save. In fact, 56 percent of surveyed workers over age 45 say they have found it more difficult to pay for basic needs (food, gas, medication, etc.) and 45 percent report having difficulty paying for utilities (heating, cooling, phone service, etc.).
Data recently released from Golden Gateway Financial, a comprehensive resource for senior, boomers and those approaching retirement, and reported by MarketWatch further defines the situation:
- The average national existing forward mortgage debt during the 3rd quarter of 2008 was 50 percent higher that the national average of $219,321.
- Seniors self-reported a 4.5 percent decline in home values during the 3rd quarter compared to the 1st quarter of 2008.
- The average age of those applying for a reverse mortgage has increased by almost a full year since the 1st quarter of 2008.
AARP reports that more than 684,000 homeowners over age 50 are already behind on their mortgage payments or in foreclosure. It is likely more seniors will find themselves facing foreclosure if the economy does not improve or some type of aid is not made available.
Reverse mortgages, however, are not immune, and do not protect senior homeowners, from the current mortgage crisis. Private lenders have greatly reduced their reverse mortgage offerings and approvals, although HECMs are still available. Even worse, unlike a traditional mortgage where debt decreases as equity increase, in reverse mortgage, debt increases along with equity. Seniors, who may have had little mortgage debt or owned their homes outright, may find themselves owing more than their homes are worth.
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