Debt after Retirement

Carrying Debt After Retirement

The New York Times

By LISA PREVOST

If college debt is a hindrance to young adults, mortgage debt is the drag on homeowners heading into retirement.

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A much higher proportion of homeowners over 65 are carrying mortgage debt compared with past generations. And that debt could make it harder for them to stay in their homes.

The Consumer Financial Protection Bureau estimates that 30 percent of all homeowners 70 and older have mortgages to pay off. In 2001, just 8 percent of owners 75 or older carried mortgage debt, according to the Federal Reserve’s Survey of Consumer Finances, published in 2010.

The trend is noteworthy because the retiree population is about to get bigger. Speaking at a recent forum on the future of housing, sponsored by the National Association of Home Builders, Eric S. Belsky, the managing director of Harvard University’s Joint Center for Housing Studies, said the number of households with people over 65 would increase by nearly 11 million over the next decade.

One repercussion for older borrowers is that they will have to work longer, said Christopher J. Mayer, a professor of real estate at Columbia Business School, who also spoke at the forum. Another likely outcome is a spike in demand for reverse mortgages. This program enables homeowners 62 and older to borrow money using their home equity as collateral. The loan is repaid to the bank, along with interest and fees, after the borrower moves or dies. The funds must first be used to pay off the mortgage, which then frees the homeowner from monthly payments.

Few people take advantage of this option now — only about 70,000 new reverse mortgages are originated each year, according to the Consumer Financial Protection Bureau. Major lenders like Wells Fargo, meanwhile, have exited the business.

But as they struggle to cover mortgage costs along with health care bills, property taxes and home insurance, more older Americans may have to rely on reverse mortgages to remain in their homes.

The amount of mortgage debt they are carrying is not insignificant. As of 2010, the average amount of mortgage debt carried by new retirees was $70,000, according to Alicia H. Munnell, the director of the Center for Retirement Research at Boston College. “In the past,” she said, “people saved their home equity to leave it for their children or some other purpose. I think that’s a luxury many people are not going to be able to enjoy in the future.”

(Mr. Mayer and Ms. Munnell have interests in a new reverse mortgage company, Longbridge Financial; Mr. Mayer is a partner and Ms. Munnell is on the board.)

Buyers of reverse mortgages have not been immune to the unscrupulous practices that put many others into loans they couldn’t afford. Homeowners who don’t understand the complex loan terms, or who can’t maintain insurance and property tax payments, could lose their homes.

Recent rule changes announced by the Federal Housing Administration, which insures most reverse mortgages, require that lenders verify an applicant’s ability to make tax and insurance payments over the life of the loan. And a restriction on the amount that can be taken out upfront may encourage borrowers to use their money more slowly, Ms. Munnell said.

A study of people seeking reverse mortgages could help the government further revise the program. Stephanie Moulton, an associate professor at the John Glenn School of Public Affairs at Ohio State University, is heading a study of 32,000 people who sought counseling for reverse mortgages from 2006 to 2011. Her initial findings will be released in November. But she says her subjects confirm the debt trend: about 60 percent got a reverse mortgage, and about half already had mortgage debt.