WSJ: Coronavirus Worsens Finances of Seniors with Forward Mortgages

Growing numbers of American seniors are carrying forward mortgage debt, an issue that is likely to become exacerbated due to the effects of the COVID-19 coronavirus pandemic, as retirees are seeing many of their investments and accounts being negatively impacted by the national economic stand-still. This is according to data analysis from the Urban Institute and Harvard University’s Joint Center for Housing Studies, in a story at the Wall Street Journal (WSJ).

“In the U.S., some 9.18 million homeowners age 65 and over have mortgage debt, according to federal data analyzed by the Urban Institute. That’s up nearly 60% from 5.82 million a decade ago,” WSJ reporter Christina Rexrode writes. “Homeowners 65 and over who have mortgage debt owe a median of $72,000, according to separate federal data analyzed by Harvard University’s Joint Center for Housing Studies.”

After buying a home in their younger years, many people that are now getting closer to retirement may have either purchased a new home in the intervening time, or moved to a different city. These transactions often come with a new mortgage, adding years to the life of their mortgage debt or paying tens of thousands of dollars in additional interest, Rexrode writes. Even refinance transactions to take advantage of lower rates may have “reset the clock” on debt, she says.

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When older people carry mortgage debt at or near retirement, the ability for them to weather job losses or to cover unexpected expenses is significantly diminished. This causes many older people to have to work longer than they have planned to, Rexrode writes, with some economists relating to WSJ that seniors could become more susceptible to foreclosure.

“There are definitely some signs of potential trouble ahead,” according to Jennifer Molinsky, senior research associate at Harvard’s Joint Center to WSJ.

The retirement landscape has already changed for two major reasons: rising costs and the stagnancy of wages, Rexrode writes.

“Many boomers are saddled with expensive medical bills and student loans, both their own and their children’s,” she says. “Now their long-held financial template—with homeownership as the foundation for savings—is also growing shaky.”

30 years ago, roughly 20% of American homeowners at or over the age of 65 had mortgage debt, according to research from Harvard’s Joint Center. Now, that figure is closer to about 40% of older Americans who maintain housing debt, while the median owed amount has “quadrupled after adjusting for inflation,” Rexrode writes.

The share of seniors who count as first-time homebuyers has also increased, with 11% of new homebuyers being age 55 or older, according to research from the National Association of Realtors (NAR).

However, the new class of retirees does not have the same kind of anathema toward tapping home equity as their parents, Rexrode writes.

“Boomers, unlike their parents, didn’t grow up in the Great Depression or celebrate paying off a mortgage with a note-burning party,” she writes. “They are more comfortable with debt as a strategic financial tool and don’t view tapping their homes for cash as the last resort that their parents did.”

Read the story at WSJ, subscription required.

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  • Who ever is in the reverse mortgage space and reads this article, Bells should go off in their heads!

    These are valuable statistics, yes, it is unfortunate that we are all going through the Coronavirus nightmare, but think of the good a reverse mortgage can do for so many of these seniors!

    Not only capitalize on what is available to you, but think of how many seniors you can help during these difficult times. So many of these senior Homeowners need us right now and don’t even realize it!

    Work hard from Home, research the data available to you! Start contacting these seniors, explain and show them how you can help them. Sure, no personal contact right now, but there are so many ways to get the job done for them and yourself.

    We have phones, computers, we have many communication devices available to us for those seniors that are computer savvy. There is Skype, Zoom, Facebook Messenger, meeting on line and so many more options.

    Bad times for us all right now, but good times to be originating reverse mortgages and helping our seniors who need it more now than ever!!

    Stay safe all and God Bless,

    John A. Smaldone
    http://www.hanover-financial.com

    • Hey John,

      The article deserves a great deal of looking into. It is far too optimistic. If those replacing those born before the Great Depression are supposedly less biased toward taking on new debt than it would seem that in the last decade, we would have seen HECM endorsement numbers on the rise.

      It seems far too many forget that 2009 was the end of a three year slightly rising plateau resulting in the highest number of HECMs ever endorsed at over 100,000 endorsements each fiscal year. At our current pace, it will take more than 7 fiscal years to generate as many HECM endorsements as the industry did just in three years.

      Forgive my skepticism but our numbers do not support the notion that the stigma of mortgage debt is lessening as the older population is passing away. Our history says something very different. For a solid decade we have been hearing how things will turn around in the near future. Even some got the entire industry stirred up about 300,000 HECM endorsements in 2018 alone. Even babies get tired of a steady diet of pablum.

      By the way the story of Baby Boomers having a higher propensity to take on debt was a common newsworthy “event” in this industry when I came into it over 15 years ago. Even before entering the industry, for over two decades tax attorneys and other tax experts were discussing this phenomenon ad nauseum.

      The difference RIGHT NOW is not about reluctance to take on debt but rather the eye opening situation of needing liquidity without sacrificing one’s position in a defined contribution account, an IRA, portfolios, other investments, or cash reserves. What the article shows is how little we have learned in the last 15 years about the needs of seniors. Also if there were not the need for the funds mortgages provide, today’s Baby Boomers would not be much different than their parents as to the reluctance to take on more debt.

      Never get confused. If you think today’s 62 year olds are more likely to take on a mortgage after reaching age 62, just look to HECM and proprietary reverse mortgage history over the last 15 years and then take a healthy assessment at where we are today. Facts are facts and dreams are dreams. It seems when facts are no longer convenient or helpful to the cause of the optimistic, unrealistic dreams begin to dominate as they have throughout the last decade. As one friend tells me frequently, he remembers hearing at NRMLA conventions over the last decade how HECM endorsements and proprietary reverse mortgage originations would soon be on a growth path to the future. He does not remember anyone warning of worse numbers on the horizon. Such is unbridled optimism.

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