WASHINGTON (7/20/12)--The perception of financial security among seniors is falling by the wayside--another apparent victim of the mortgage crisis, said a new study from AARP. Americans age 50 and over are carrying more mortgage debt than ever before, and more than three million are at risk of losing their homes, according to the study.
This will present challenges for credit unions in serving a segment of their membership long perceived as having wealth.
"Although mortgage delinquency rates at credit unions are much lower than those found in the AARP study, credit unions should be aware that many of their senior members will be facing challenges with mortgage debt," said Credit Union National Association Chief Economist Bill Hampel.
"In addition, members that had been counting on the equity in their homes to provide a large portion of their retirement nest egg will be looking for other ways to fund retirement. For many that will require postponing retirement and finding a safe place to invest in the meantime. Credit union retirement accounts can meet part of that need," he told News Now.
As of December, about 3.5 million loans held by people age 50 and over were underwater--they owe more than their home is worth, according to the AARP study. That means more seniors have no equity in their homes, which has long been considered as a source of financial security for the elderly.
Among the findings:
- As of December 2011, 16% of loans of the 50-plus population were underwater.
- Roughly 600,000 loans of people in this group were in foreclosure, with another 625,000 loans 90 or more days delinquent.
- The percentage of loans that are seriously delinquent increased 456% to 6% in 2011 from this segment for 1.1% in 2007.
Of mortgage borrowers age 50-plus, middle-income borrowers have been most burdened by the financial crisis. Those with incomes ranging from $50,000 to $124,999 accounted for 53% of foreclosures of the 50-plus population in 2011. Borrowers with incomes below $50,000 accounted for 32% of foreclosures in this segment.
The percentage of Americans carrying mortgage debt as they age and the amount of that debt has increased steadily during the past 20 years. The largest increase in the percentage of older homeowners with mortgage debt is in the 75-and-over age group, but Americans 55 and older also increased their mortgage debt.
"This increase partly reflects increased borrowing that was spurred by historically low interest rates and high home values prior to the housing market collapse," the study said. "It may indicate that the oldest borrowers have tapped their home equity to finance their needs in retirement."
Foreclosure rates for first mortgages of the 50-plus population rose to 2.9% in 2011 from 0.3% in 2007. For this group, delinquency rates of more than 90 days increased to 3.03% in 2011 from 0.77% in 2007.
The increase in serious delinquency rates for the oldest borrowers is troubling, said AARP.
Several factors have contributed to this surge. The rising amount and incidence of mortgage debt, the length of time people have been living on a fixed income, and higher living expenses stress the budgets of older households, said the study.
Also, before tax income dropped 5.4% from 2007 to 2010 in real terms for households where the age of the head of household is 75 and over, AARP.