Wednesday, December 10, 2008

The State of Our Seniors

The great economic downturn has wrecked havoc on our house values, 401Ks, and IRAs. Now senior savings have deteriorated along with everyone else. The big problem is that this group is depending on this money for living now - not 10 to 20 years in the future after the has passed. In an article from CNN Money titled Seniors Face Grim Choices Amid Market Shock shows just difficult the golden years are since the bubble burst. Lets take a look -

In a poll of 800 homeowners over the age of 65, 31% said that they are staying on the job longer due to their shrinking retirement funds, while another 22% plan to return to the workforce.

Seniors are also liquefying hard assets - usually their homes - to fund their retirements. About 80% of seniors own their own homes and 80% of those homeowners have paid off their mortgages in full, according to [Eric Bachman, founder and CEO of Golden Gateway].

About 12% of those surveyed said they are actively borrowing against the value of their homes to make up for market losses. Some are taking out home equity loans, but this kind of borrowing in retirement can be perilous. Seniors can find themselves unable to pay back these loans and wind up losing their homes.

Others are getting reverse mortgages, which let seniors take money out of their homes that doesn't have to be repaid until they die or the house is sold. Golden Gateway, which is a reverse mortgage broker, says that the number of reverse mortgages in October jumped 21% compared to last year.

Another 13% of survey respondents said they're currently trying to sell their homes because they need the money, while 19% are worried about losing their homes altogether.

We, at NJ HELOC Heaven, are not big fans of reverse mortgages (see here, here and here). Overall we see the biggest benefits of the program going to brokers and lenders. And since the rest of the mortgage market has been flailing the push for reverse mortgages seems even more aggressive. While we do not want seniors, or anyone else, to suffer in the current downturn, we do not want to watch a third party drain the equity that someone has built up. Our recommendation is to proceed with much caution regarding reverse mortgages.

Another thing to remember is that not all reverse mortgages are Home Equity Conversion Mortgages (HECMs) - which are federally insured.

Our advice - be careful, go in with both eyes open, and check out your mortgage broker before signing anything. As we noted in one of our previous reverse mortgage posts -

"We may see in the future we may have another minor catastrophe going on, not subprime mortgages, but reverse mortgages."

This is something we do not want to see.

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