Reverse Mortgage foreclosure – “fake news”
A recent article in the Washington post headlined: More Seniors taking loans against their homes – and it’s costing them. It details the story of a 92 year old woman in Washington D.C. who took out a reverse mortgage and is now facing foreclosure.
Do reverse mortgages run a higher risk of foreclosure?
This kind of sensationalism has created a misconception that reverse mortgages run a higher risk of foreclosure than do traditional forward mortgages.
This is largely due to a lingering bad reputation that reverse mortgages earned prior to the 1987 Housing and Community Development Act, when the government systemized reverse mortgages through the Home Equity Conversion Mortgage (HECM) program. However, today all HECM reverse mortgages are heavily regulated and there are many protections in place to help prevent borrowers from defaulting on their reverse mortgage.
In fact, foreclosure is more likely with a conventional mortgage than with a reverse mortgage. Conventional mortgages have a default rate of 4.8% while reverse mortgages funded after the implementation of financial assessment protocol hold a default rate of only 1.2%.1,2
Why are more seniors facing foreclosure?
The heart of the problem is that more seniors are entering retirement with mortgage debt than ever before. Prior to 1990, foreclosures on senior homes were much less common. In 1989 only 21.8% of homeowners age 65-74 had any housing debt.3 As of 2016, that number has grown to 38.8%.3 For homeowners over the age of 75 the figure is even more concerning with 26.5% carrying mortgage debt in 2016 compared to only 6.3% in 1989.
Not only are more seniors carrying housing debt into retirement that amount has increased dramatically over the last 30 years. According to the Federal Reserve’s inflation adjusted historical survey data on consumer finances, in 1989 homeowners age 65-74 owed $30,800 on their homes, while that same group owed $114,900 in 2016.3
Identifying the problem is simple, solving it: not so much.
Retirees have fixed incomes while trying to survive the rising costs of just about everything. The payments required of a traditional forward mortgage put limitations on retirees’ lifestyles and can lead to foreclosure if they are unable to keep up with their monthly payments after they stop working.
A reverse mortgage is an obvious solution because they do not require monthly payments and do not become due until the last borrower no longer occupies the home as their primary residence or fails to meet the loan obligations. But they are not for everyone and should only be considered after thorough research.
Related: What is The New Reverse Mortgage
The New Reverse Mortgage isn’t for everyone…but it could be!
If you’re still wondering if The New Reverse Mortgage is the right solution for you but you’re not ready to sit down with one of our Reverse Mortgage Experts, then we’ll be happy to mail (or email) you Use Your Home to Stay at Home which is the official federally approved consumer booklet for those considering a reverse mortgage.
1 New View Advisors. Financial Assessment is Working (Part IV). http://newviewadvisors.com/commentary/
2 Mortgage Bankers Association. Mortgage Foreclosures and Delinquencies Continue to Drop. https://www.mba.org/2016-press-releases/feb/mortgage-foreclosures-and-delinquencies-continue-to-drop
3 Survey of Consumer Finances (2017), Historic Tables and Charts (Estimates inflation-adjusted to 2016 dollars) (as of October 31, 2017) [Microsoft Excel spreadsheet]. Sheets: Table 13 89, and Available from: https://www.federalreserve.gov/econres/scfindex.htm
Some of this information first appeared on Libertyhomeequity.com