NEW YORK -- A growing number of older Americans are falling into serious mortgage debt, with more than three million borrowers over the age of 50 at risk of losing their homes to foreclosure, according to a recent report from the AARP.
Since the housing crisis started, more than 1.5 million homeowners age 50 or older have already lost their homes to foreclosure, pushing the foreclosure rate among this group to 2.9% in 2011 from 0.3% in 2007, according to the AARP's Public Policy Institute. And another 3.5 million have found themselves underwater, owing more on their mortgage than their homes are worth.
Long believed to be cushioned from the blow of the housing crisis -- because they owned their homes outright or hold large equity stakes that they could draw from in case of financial hardship -- older Americans are "carrying more mortgage debt than ever before."
"As the mortgage crisis continues, millions of older Americans are struggling to maintain their financial security," the report said.
Underlying the problem is that more older Americans have mortgages than they did 20 years ago -- and the amount of debt they owe is much greater.
The percentage of families with mortgages held by someone age 75 or older, for example, jumped to 24.2% in 2010, up from 6.3% in 1989, according to the Federal Reserve. Over the same time period, the amount of mortgage debt this group of borrowers owed jumped to a median of $52,000, up from $11,800.
Many of these older borrowers were saddled with toxic subprime loans issued during the latter years of the housing bubble, said David Jones, president of the non-profit Association of Independent Consumer Credit Counseling Agencies.
Older homeowners were often convinced to refinance their mortgages for more than they owed and use the extra cash to repair their homes or pay bills.
These subprime loans were often enticing because the interest rates were low for the first few years. But the rates jumped after that and borrowers soon found themselves saddled with unaffordable monthly payments.
Compounding the problem was the sharp decline in home values. Nationwide,home prices have fallen about 34% since the mortgage meltdown began in mid-2006, according to the latest S&P/Case-Shiller home price index. But they were specially hard hit in states that attract retirees, like Florida, Arizona, Nevada and California, pushing many of the borrowers that live there underwater on their loans and making them more vulnerable to foreclosure.
Less Time to Regain Ground
When older borrowers lose their homes, there's less of a chance that they will recover financially.
"Foreclosures unduly weigh on older borrowers because so many are on fixed incomes," said Kathleen Day, spokeswoman for the Center for Responsible Lending. "They have little time to rebuild their finances."
Older workers who lose their jobs, for example, have a harder time getting hired than younger workers. And those who do find a job often end up taking a pay cut, making it more difficult for them to afford their mortgage payments, the report said.
And while the economy is slowly recovering and home prices are starting to stabilize, it may be too little too late for many older homeowners -- especially the 3.5 million who are currently underwater on their mortgages.
Many of these borrowers don't have enough time left to rebuild their finances before declining health or disability forces them into retirement and starts eating away at their savings.
The AARP offered up a few recommendations for easing the mortgage problems of older homeowners, including the use of principal reduction, or forgiving some of the mortgage debt that is owed on the home. The group cited growing evidence that default rates decline when mortgage balances are lowered to better reflect current market value of homes.
AARP also said more states should introduce mandatory foreclosure prevention programs. Under these programs, servicers cannot pursue foreclosures until a review and mediation is conducted.
It also recommended stepped up enforcement against foreclosure prevention scams that offer to save people's homes, collect a substantial up-front fee and then do little or nothing.
A recent report by the Lawyers' Committee for Civil Rights revealed that nearly half of these scams roped in older Americans, who lost a collective $16 million to these types of fraud.
Of the state’s 2.16 million mortgages, about 529,800, or nearly a quarter of homes with mortgages, were underwater as of the first quarter of this year. Meanwhile, an additional 125,901 homes, or 5.8 percent of the homes in the states, were near negative equity. In April, 6.6 percent of those with mortgages were 90 days or more overdue on their payments, and 3.4 percent were in foreclosure -- the 10th-highest proportion in the country. While the state has the 10th-highest percentage of mortgages with negative equity, it has the seventh-highest total loan to value ratio of 76.4 percent.
Between the end of 2006 and the end of 2011, home prices in Maryland fell by 28.9 percent, the 10th-largest decline in the country. Nearly 30 percent of Maryland’s homes with mortgages either had negative equity or were near negative equity as of the first quarter of this year. Fortunately, Maryland’s economy is better than most. The state’s unemployment rate in May was 6.8 percent, and Maryland has the highest median income in the country, which should help mitigate some of the pressure on homeowners. However, while foreclosure rates in April were the 17th highest at 3 percent, the state has the sixth-highest percentage of mortgages that are 90 days or more delinquent on their payments.
The total property value of the state of Idaho is an estimated $46.9 billion. Total outstanding debt is estimated at $34.7 billion. Between the end of 2008 and the end of last year, home prices fell by 22 percent, the third-highest decline in the country and worse than states like Florida and Arizona. Fiserv projects that the state’s housing market is making a recovery. Home prices are expected to rise by 4.1 percent in 2012 — the largest increase among all states. Between the end of this year and the end of 2013, they are expected to increase an additional 12 percent — far more than any other state.
There were 624,577 negative equity mortgages in Illinois, higher than all states except for California and Florida. Together with near negative equity mortgages, that number rises to 734,459. Homeowners in Illinois have more than $368 billion in mortgage debt outstanding, or more than three times the $112 billion those homeowners have in home equity. Some of the homeowners are in significant trouble. About 5.3 percent of all homes in the state are in foreclosure -- more than all states except for Florida and New Jersey.
Mortgages underwater: 30.5% Total property value: $2,690 billion (the highest) Mortgage debt outstanding: $1,911 billion (the highest) Mortgages 90+ days delinquent: 6.2% (18th highest)
The California housing market is so large that it has a strong effect on national averages. About 22 percent of both the total property value and outstanding mortgage debt in the U.S. is in California. Between the fourth quarter of 2006 and the fourth quarter of last year, home prices fell in California by an estimated 46.7 percent — the fourth-largest decline in the country after only Nevada, Arizona and Florida. The state’s mortgage owners have taken a severe hit as a result. Not helping matters much is the state’s high unemployment rate. In May it was still in the double digits at 10.8 percent, the third highest in the country.
Despite more than 1 in 3 homes with negative equity, there are some positive signs in Michigan. The state was the only one on the list with rising home prices in 2011, with prices increasing a modest 1.7 percent. Meanwhile, Michigan’s unemployment rate of 8.5 percent ranked 12th in the U.S. in May. This is quite the improvement from the long period — until June 2010 — that Michigan held the dubious title of having the highest unemployment rate in the nation, topping out at more than 15 percent at the height of the recession.
In 2011 alone, home prices fell by approximately 12.7 percent in Georgia, more than any other state in the country. Measured from the end of 2006, home prices have plunged nearly 35 percent, and are projected to fall an additional 4.2 percent in 2012. More than 7 percent of homeowners with a mortgage are 90 days or more delinquent on their payments as of April, the eighth-highest rate in the country. In all, total outstanding mortgage debt comes to $246.5 billion, the equivalent of 84.1 percent of the total property value in the state. This is the fourth highest loan-to-value ratio in the country.
While states such as Arizona helped fuel economic growth in the mid-2000s with rising home values and new construction, the housing market began to hollow by 2007 and 2008. Case-Schiller predicts that home prices in Arizona will fall 9 percent in 2012, more than any other state. But other signs are pointing to an improving housing market, albeit modestly. When 24/7 Wall St. looked at underwater mortgages in March, 48.3 percent of Arizona’s mortgages were underwater, the second-highest rate in the country and nearly 5 percent higher than a quarter later. Meanwhile, total property value has risen a modest $6 billion between the fourth quarter 2011 and the first quarter of 2012, while outstanding debt has fallen by about $4.5 billion.
Pictured: The Grand Canyon
Mortgages underwater: 45.1% Total property value: $777.34 billion (3rd highest) Mortgage debt outstanding: $684.97 billion (second highest) Mortgages 90+ days delinquent: 16.8% (the highest)
Home prices in Florida were nearly cut in half between 2006 and 2011. By the end of the first quarter, there were more than 1.9 million negative equity mortgages in the state with another 168,000 near delinquency. Homeowners in the state owe about $685 billion in mortgage payments, more than any other state except for California. Florida’s unemployment rate of 8.6 percent is above the national average of 8.2 percent, but it still could help it get out of the mortgage mess quicker than states such as California and Nevada, which have much higher unemployment rates.
No state has been hit harder by the housing downturn than Nevada. Between the end of 2006 and the end of 2011, home values have tanked nearly 60 percent, higher than any other state by 7.2 percentage points. In 2011 alone, home prices fell another 9.4 percent. This has left many Nevadans owing significantly more on their homes than they are worth. The average loan-to-value ratio of a Nevada home is 114 percent, 25 percentage points higher than Arizona’s 89 percent (the second highest). In May, 24/7 Wall St. reported that 71 percent of mortgages in the state’s largest city, Las Vegas, were underwater, with values declining 63.2 percent from their peak. The state’s unemployment rate is 11.6 percent, the highest of any state in the U.S., making it that much harder for many Nevadans and damping hopes of a quick recovery.