davedtitos: More Seniors Carry Mortgage Burden

More Seniors Carry Mortgage Burden

by Center for Personal Finance editors

The perception of financial security among seniors is falling by the wayside?another victim of the mortgage crisis, says a new AARP study. Americans age 50 and older are carrying more mortgage debt than ever before, and more than three million are at risk of losing their homes, according to the study as reported in News Now from the Credit Union National Association (CUNA).

CUNA Chief Economist Bill Hampel says, "Members that had been counting on the equity in their homes to provide a large portion of their retirement nest egg will be looking for other ways to fund retirement. For many, that will require postponing retirement and finding a safe place to invest in the meantime." Hampel points out that credit union retirement accounts can meet part of that need.

As of December, about 3.5 million loans held by people age 50 and older were underwater?the loans are more than the homes are worth, according to the AARP study. That means more seniors have no equity, long considered a source of financial security, in their homes.

Among the findings:

As of December 2011, 16% of loans held by the 50-plus population were underwater.
About 600,000 loans held by consumers in this group were in foreclosure, with another 625,000 loans 90 days or more delinquent.
The percentage of loans that are seriously delinquent increased 456% to 6% in 2011 for this segment, from 1.1% in 2007.

Of mortgage borrowers age 50-plus, middle-income borrowers have been most burdened by the financial crisis. Those with incomes from $50,000 to $124,999 accounted for 53% of foreclosures of the 50-plus population in 2011. Borrowers with incomes less than $50,000 accounted for 32% of foreclosures in this segment.

About 3.5 million loans held by people age 50 and older are underwater?the loans are more than the houses are worth.

The percentage of Americans carrying mortgage debt as they age and the amount of that debt has increased steadily during the past 20 years. The largest increase in the percentage of older homeowners with mortgage debt is in the 75-and-older age group, but Americans 55 and older also increased their mortgage debt.

"This increase partly reflects increased borrowing that was spurred by historically low interest rates and high home values prior to the housing market collapse," the study said. "It may indicate that the oldest borrowers have tapped their home equity to finance their needs in retirement."

Foreclosure rates for first mortgages of the 50-plus population rose to 2.9% in 2011 from 0.3% in 2007. For this group, delinquency rates of more than 90 days increased to 3.03% in 2011 from 0.77% in 2007.

The increase in serious delinquency rates for the oldest borrowers is troubling, reports AARP.

Several factors contribute to this surge: The rising amount and incidence of mortgage debt, the length of time people have been living on fixed incomes, and higher living expenses stress the budgets of older households, according to the study.

In addition, before-tax income dropped 5.4% from 2007 to 2010 in real terms for households where the age of the head of household is 75 and older, AARP reports.

Published August 9, 2012