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Senior citizens now also in the foreclosure firing line

  • Older Americans more likely to face foreclosure

As the Nation’s economic downturn nibbles further at individual American’s pockets, more and more folk are turning to selling off the family silver to buy time. One such strategy is taking a reverse mortgage, where they get cash-back from mortgage payments already made. This plan is popular among older Americans who have been accumulating equity for decades – especially attractive is the fact that repayments are not needed for as long as the affected property remains the primary home.

Before you rush off and avail yourself of these benefits, a moment please while you hear the other side. If you omit to service rates or pay hazard insurance premiums, in the near future your risk of ending up in foreclosure is about to rise.

The new danger

The dominant player in the reverse mortgage game is the Federal Housing Association. While previously that Administration has been relatively lenient in overlooking elder clients’ insurance and tax delinquencies, expect a different frame of mind when new guidelines are announced this summer.

In changing gear, the Federal Housing Association is responding to economic pressure following its $800 million budget deficit last financial year. The main driver here is the falling property prices that forced it into doing short sales on the properties that it repossessed. While the Association’s request for a $250 million Congress subsidy remains unanswered, Ii has already slashed senior citizens’ borrowing power by 10%. Fannie Mae is already following suit. It has instructed its service providers to similarly toughen up their style by pressing for foreclosure in cases of similar delinquency.

Implications for senior homeowners

I chatted briefly with a director of a leading senior persons’ interest group. I was told that, in a nut-shell, seniors who take reverse mortgages but don’t have capacity to make timely insurance and property tax payments, are about to face a harder higher risk of foreclosure. In the past, both Fannie Mae and the Federal Housing association avoided creating headlines like heartless agency puts forgetful old folks on the street. Those days are gone now and there’s scant room for financial wriggling.

Reverse mortgages do not have the escrow cushions that characterize regular mortgages. This leaves servicing hazard insurance premiums and municipal bills firmly on the hand of seniors, who may, or may no longer have the capacity to manage their own affairs – the consequence is that their homes could become exposed to priority tax liens, and end up being sold from out under their feet.

What happens next?

Both lending agencies are looking for solutions to manage the moral dilemma that they face. Ought they to show sympathy to elder citizens, or apply their rights? Possible solutions under consideration include better early warning systems, following up on problems sooner, and offering practical advice.

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