A new report shatters the myth that older Americans largely escaped harm in the foreclosure crisis by having large amounts of equity or owning their homes outright. In fact, more than 1.5 million people age 50-plus have lost their homes since 2007 and at least 3.5 million more remain at risk at this most vulnerable stage of their lives.
"Nightmare on Main Street: Older Americans and the Mortgage Market Crisis," produced by AARP’s Public Policy Institute, found that mortgage debt has been increasing among older Americans and that more of them are taking it right into retirement.
Perhaps most disturbing, homeowners age 75 and older showed the fastest rise in this kind of debt, which can crumple fixed-income retirement budgets. Likewise, they had a higher foreclosure rate (3.2 percent) than younger members of the 50-plus group, the study found.
All in all, the foreclosure rate on prime loans in 2011 for older borrowers was 2.3 percent, 23 times higher than the 0.1 percent rate of 2007.
“More older Americans are carrying mortgage debt than in the past, and the amount of that debt is also increasing … leading to their worsening situation,” said Debra Whitman, AARP executive vice president for policy. “It’s one thing if your housing value goes down in your 50s. It’s another thing if you’re 75. For some people, it’s not like you can go back to work.”
- 3.5 million older mortgage holders were “under water,” meaning they owed more than their homes were worth.
- 625,000 were 90 or more days delinquent on their loans.
- 600,000 were in foreclosure.
If there was any good news for older people in the report, it was that in 2011 they had a slightly lower overall foreclosure rate, 2.9 percent, than the 3.5 percent figure of people less than 50 years old. Yet even that was conditional: The older group’s rate had grown at a faster clip than younger people’s.
The AARP analysis, using facts and figures from the data tracking firm CoreLogic and other sources, was the first to measure the effects of the foreclosure crisis and plunging property values on older homeowners. The findings exposed the deep financial vulnerability of boomers and other older adults who got caught up in the mortgage mess at a time when they had few working years, if any, left to rebuild a savings cushion for retirement.
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In their older years, people often tap their home equity — the biggest asset that many have — to pay for long-term care, home maintenance, medical bills and other expenses. What happens when that money no longer exists?
"You may have been working for years toward paying your mortgage, and the security you thought you’d have isn’t there," Whitman says. "Not only that, the downturn in the market meant savings fell flat. Pensions are going away. It's really this huge storm of things hitting people right now."
The recession left few people unscathed, but some groups felt the pain more than others, the study found.
Older borrowers with incomes from $50,000 to $124,999 accounted for 53 percent of foreclosures in 2011; those earning below $50,000 accounted for 32 percent.
Among older mortgage holders, minorities were hit the hardest. Foreclosure rates on prime mortgage loans with fixed rates reached 3.9 percent for Hispanics in 2011 and 3.5 percent for African Americans, about double the rate of 1.9 percent for white borrowers.
Risky subprime loans, which helped to ignite the foreclosure crisis with their high interest rates and treacherous terms that were often peddled to unsuspecting borrowers, predictably fueled more foreclosures than prime mortgages.
African Americans had the highest subprime foreclosure rate among older borrowers in 2007. But in 2008, older Hispanics took over that status and suffered the highest foreclosure rate through 2011.
Other findings involving subprime loans given to borrowers 50-plus:
- Hispanics held the largest percentage of delinquent subprime loans (25.9 percent) in 2011, followed by Asians (25.0 percent), African Americans (24.9 percent) and whites (24.4 percent).
- The overall foreclosure rate on subprimes rose from 2.3 percent in 2007 to 12.9 percent in 2011.
- Rates of serious delinquency hit 25 percent in 2011, five times higher than the rates for prime loans.
The study recommends steps to improve housing policy, including:
- Requiring all states to implement foreclosure mediation programs to help more homeowners stay in their homes;
- Returning vacant bank-owned properties to their proper use as homes through funding for community banks and assistance to local and state programs;
- Developing rent-to-own programs to help people buy bank-owned or vacant homes;
- Setting loan servicing standards for all servicers, not only the five big banks that in February signed a settlement with state attorney generals to rein in abuses and misconduct that have resulted in improper foreclosures;
- Expanding access to housing counseling programs.
Carole Fleck is a senior editor at AARP Media.