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reverse mortgage information aarp

Is a Reverse Mortgage the Right Choice for You?— AARP Bulletin

A tale of two reverse mortgage borrowers who had two very different outcomes.

Reuters Tackles Controversy Over Reverse Mortgage Foreclosures

Between April 2009 and December 2016, the death of a borrower represented 99% of all HECM foreclosures, according to HUD data.

“Borrowers are passing away,” National Reverse Mortgage Lenders Association president Peter Bell told Reuters.

Still, some have questioned those figures. Reverse Market Insight data shows that 62% of defaults from 2009 and 2017 were the result of borrower deaths, while tax and insurance defaults accounted for 22%. An additional 15% came from borrowers who left the home, according to Reuters.

“It is likely that some of this is due to borrowers passing away,” AARP director of banking and finance Lori Trawinski told Reuters. “But do I think a bunch of them passed away in a single year? No.”

In a statement provided to RMD, Bell said some of the scrutiny was the result of “misleading data analysis.”

“We want to clarify that the most common cause of foreclosure from 2009 to 2017 is the death of the borrower, followed by failure to live in the property,” Bell said. “The number of tax and insurance default foreclosures rose dramatically after HUD enforced policies to call those loans due and payable. However, new loss mitigation practices, combined with Financial Assessment, are successfully reducing the number of tax and insurance defaults and foreclosures.

Obtaining a reverse mortgage

Reverse mortgages: an overlooked and avoided solution

With many baby boomers entering retirement with underfunded retirement savings, tapping home equity may be a good solution to provide needed funds for daily living expenses. However, only 2% of eligible homeowers have taken out a reverse mortgage.

Reverse mortgages earned a bad reputation when first introduced, as some older homeowners were pressured to use loan proceeds to complete unnecessary home improvements or invest in risky financial products. This reputation, coupled with a poor understanding of the product, cause many who might benefit to not consider the product.  

While reverse mortgages are unpopular, they may be the key to a comfortable retirement for many baby boomers. According to the Employment Research Benefit Institute, 41% of baby boomers have no retirement savings account. Even more troublesome is the fact that 44% of baby boomers entering retirement will not have adequate income for basic living expenses. However, 74% of baby boomers are homeowners, and tapping home equity may be the solution for unprepared baby boomers to acquire needed funds in retirement.

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