Older Homeowners Hit Hard by Mortgage Crisis, Study Suggests

America’s mortgage crisis affected millions of older homeowners just at the time when their retirement nests should be heavily feathered, according to a study from the Public Policy Institute of the American Association of Retired Persons (AARP).

Based on an analysis of nationwide loan-level data for the years 2007 to 2011, the report from CoreLogic, a provider of property, mortgage loan origination and performance data, carries an ominous title: “Nightmare on Main Street: Older Americans and the Mortgage Market Crisis.”

The study measures the progression of the mortgage crisis and its effect on people age 50 and older. Among its findings:

  • More than 1.5 million people age 50-plus have lost their homes to foreclosure since 2007;
  • 3.5 million older mortgage holders (16 percent of all outstanding loans in the 50-plus age group) are currently “under water” and at risk of losing their homes;
  • 625,000 homeowners were 90 or more days delinquent;
  • and 600,000 homes were in foreclosure.

Analysis: Older Homeowners Vulnerable

The AARP analysis exposes the financial vulnerability of older homeowners, and debunks the myth that older Americans escaped financial harm in the housing crisis because they were believed to have more equity in their homes than younger mortgagees, or owned their homes outright.

In fact, many older borrowers have either tapped into their home equity via refinancing or second mortgages, or have been hit with steep increases in their adjustable rate loans and can no longer make their monthly payments.

In addition, the rising costs of living, pension cuts, dwindling stock portfolios, falling property values, and the low savings rate among older homeowners, have all contributed to this cohort’s inability to meet their mortgage obligations.

The overall foreclosure rate on prime loans for older borrowers was 2.3 percent – 23 times higher than the 0.1 percent rate of 2007.

Hardest hit, were homeowners age 75 and older who are more likely to be on fixed-incomes, have higher medical bills, and possess a much lower likelihood of being in, or returning to, the work force.

Their 3.2 percent foreclosure rate grew more than eightfold between 2007 and 2011, and is higher than younger members of the 50-plus age group (3.0 percent for those age 50-64, and 2.6 percent for those age 65-74).

‘Crisis Far from Over’

“More older Americans are carrying mortgage debt than in the past, and the amount of that debt is also increasing . . .  leading to their worsening situation,” AARP Executive Vice President for Policy Debra Whitman said. “This crisis is far from over.”

The report also quantifies various demographic statistics:

  • Older borrowers with incomes from $50-125K, accounted for 53 percent of 2011 foreclosures; those earning below $50K accounted for 32 percent.
  • Foreclosure rates on prime, fixed-rate loans reached 3.9 percent for Hispanics; 3.2 percent for African-Americans; and 1.9 percent for whites.
  • The foreclosure rates on subprime loans rose from 2.3 percent in 2007 to 12.9 percent in 2011.
  • Hispanics held the largest percentage of delinquent subprime loans (25.9 percent) in 2011, followed by Asians (25.0 percent), African Americans (24.9 percent) and whites (24.4 percent).

The report also outlines various recommendations to improve housing policy and help ameliorate the bleak situation for older homeowners.

Suggestions include:

  • the creation of more foreclosure mediation and counseling programs;
  • increased funding by community banks; higher loan standards;
  • and rent-to-own programs to help people buy bank-owned or vacant homes.

 

Bill “No Pay” Fay has lived a meager financial existence his entire life. He started writing/bragging about it seven years ago, helping birth Debt.org into existence as the site’s original “Frugal Man.” Prior to that, he spent more than 30 years covering college and professional sports, which are the fantasy worlds of finance. His work has been published by the Associated Press, New York Times, Washington Post, Chicago Tribune, Sports Illustrated and Sporting News, among others. His interest in sports has waned some, but his interest in never reaching for his wallet is as passionate as ever. Bill can be reached at bfay@debt.org.

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    Sources:

    1. Fleck, C. (2012, July 19). Mortgage Crisis Impacts Seniors. Retrieved July 19, 2012, from http://www.aarp.org/money/credit-loans-debt/info-07-2012/mortgage-crisis-impacts-older-americans.html?intcmp=HPBB4C
    2. Brown, R. (2012, July 19). Facing Foreclosure After 50. New York Times. Retrieved July 19, 2012, from http://www.nytimes.com/2012/07/19/us/foreclosure-rates-surge-for-older-americans-aarp-says.html?_r=1&hp
    3. Trawinski, L.A. (2012, July). Nightmare on Main Street: Older Americans and the Mortgage Market Crisis. Retrieved July 19, 2012, from http://www.aarp.org/content/dam/aarp/research/public_policy_institute/cons_prot/2012/nightmare-on-main-street-AARP-ppi-cons-prot.pdf
    4. PR Newswire. (2012, July 19). New AARP Study: Last Five Years Saw Unprecedented Numbers of Older Americans Lose Homes or Face Foreclosure. Retrieved July 19, 2012, from http://www.prnewswire.com/news-releases/new-aarp-study-last-five-years-saw-unprecedented-numbers-of-older-americans-lose-homes-or-face-foreclosure-162985996.html
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