As the United States has had to deal with an accelerating pace of extreme weather events and natural disasters — playing out most recently in coastal or island areas like Hawaii and Florida — there could be natural consequences for U.S. homeowners and, by extension, reverse mortgage borrowers. This is according to a report at The Messenger.
Homeowners are reacting to the turbulence in the property insurance market by making an increasingly risky gamble: forgoing property insurance altogether.
“Twelve percent of homeowners surveyed by the Insurance Information Institute in the second quarter said they hadn’t purchased homeowners insurance, up from 5% two years ago, according to a spokesperson,” the report said.
Nearly half of those who passed up insurance have less than $40,000 in annual household income based on the cited survey, suggesting to former Federal Housing Administration Commissioner David Stevens that they “may be retirees who have paid off their loans and are living on a fixed income,” the report said.
All mortgages require borrowers to maintain property insurance in order to keep the loan in good standing. The only homeowners who would feasibly be able to go without such insurance are people who own their homes free and clear, which are proportionally more likely to be older homeowners.
“If there’s no mortgage on their home, they can make that decision,” said Stevens, who wasn’t involved with the cited survey. “For some people who are living on a fixed income, who have seen the prices of necessities like food and energy go up significantly in the last two years, it’s one they might have to make, however reluctantly.”
Extreme weather events have been cited by insurance companies who have chosen to either minimize their offerings or outright leave high-value coastal areas including California and Florida in recent months. Those states are also big contributors to reverse mortgage industry volume due to higher senior populations and commensurately higher home values.
“Interestingly, people who are at least 62 sometimes look to something called a reverse mortgage to free up cash from their home, but those require the homeowner to have insurance,” the report explained. In addition to homeowner’s insurance, a reverse mortgage borrower is also required to stay current on their property taxes.
“As long as you don’t have a mortgage on your house, you won’t get kicked out if you don’t pay for home insurance, but you will get kicked out if you don’t pay your property taxes,” Stevens told the outlet.