Once a loan often taken by older people as a “last resort” in retirement, reverse mortgages today are “attracting a younger crowd,” writes AARP in a bulletin this week. With nearly half of people applying today under 70, AARP writes, there is a distinct change in the borrowing population.
One reason for the change might be the TV-ad blandishments of celebrities such as Fred Thompson and Robert Wagner. Thompson, in his trustworthy Law & Order voice, describes reverse mortgages as “safe” and “effective,” not to mention (in words I call American catnip) “tax-free cash” and “government-insured.” Wagner temptingly calls reverse mortgage loans an “easy first step toward enjoying life more fully.”
…guarantees make the loans sound as safe as Fred Thompson promises. But there’s something he overlooked. You can keep the house only as long as you can pay your property taxes and homeowners insurance. If you run out of money and let these bills slide, you’re in default, and the bank can foreclose on your house.
About 46,000 reverse mortgages are in default — 8 percent of the total, says the U.S. Department of Housing and Urban Development. So far, 61 percent of the troubled borrowers are in repayment plans. Still, lenders won’t let defaults accumulate indefinitely. You’ll likely see foreclosures rise toward the end of this year.
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Written by Elizabeth Ecker