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. The foreclosure proceeding are actually the result of more than $6000 in delinquent homeowner’s insurance and property taxes and not the reverse mortgage.
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.
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.
Lenders now must conduct “financial assessments” of every reverse mortgage borrower to ensure that person has enough money to pay ongoing costs, such as property taxes and homeowners insurance, over the life of the loan.
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 (2014) 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, but solving it is not easy
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. In all cases the homeowner is still responsible for keeping their homeowner’s insurance and property taxes current.
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