Another byproduct of the foreclosure crisis is the growing number of seniors with reverse mortgages who are in danger of losing their homes.
While the number is still small, roughly five percent, it's growing at an alarming rate and has pushed the U.S. Department of Housing and Urban Development (HUD) to draft new rules to address the problem.
Under the proposed rules, applicants have to show that they can pay their property taxes and insurance in order to qualify for a reverse mortgage.
Unknown to many people, reverse mortgages are available to homeowners 62 and older in need of cash. Unlike a traditional home equity loan, in which the borrower makes monthly payments, a reverse mortgage is a loan using the home as collateral, but it is not repaid until the homeowner sells the property or dies.
Proponents have applauded reverse mortgages as a way for cash-strapped seniors to pay their bills without adding another monthly payment. However, critics have cited the high upfront costs, which could be up to five percent of the home's value. Those complaints led the Federal Housing Administration-which oversees the reverse mortgage program-to initiate a new loan program with lower fees.
The brittle economy has led to issues in the reverse mortgage industry. Of the 550,000 reverse mortgages outstanding in the United States, as many as 28,000 are in default. This is primarily due to the inability of the homeowner to pay associated taxes and insurance. In some cases, banks, which are responsible for maintaining timely payment of the taxes and insurance, are tapping additional equity in the delinquent homes to pay the bills.
A review by HUD found that nearly three-quarters of the defaults are for amounts less than $5,000; while a third involve payment of home insurance premiums. HUD has since stepped up counseling for delinquent borrowers.
Facing financial crisis is stressful and the alternatives can be confusing. If you are in default on a reverse mortgage or otherwise facing the loss of your home, there are options available to you. Speak to an attorney knowledgeable in debt relief matters to discuss your options, answer your questions and help you get back on the road to recovery.