The National Mortgage Lenders Association and the National Council on Aging are training 125 counselors and will launch counseling projects in four cities designed to help elderly reverse mortgage borrowers avoid foreclosure related to the failure to pay property taxes and homeowners insurance. The group will also try to work with private insurance firms to convince them to cover reverse loan borrowers at affordable rates.
Elderly borrowers in reverse mortgages become vulnerable to foreclosure when they are unable to pay their property taxes or the premiums on their homeowners insurance policy. Oftentimes the cost of both is prohibitive for elderly borrowers on a fixed income. The group of counselors will work to with state agencies to try to create state insurance pools which are affordable for the elderly demographic. But even despite these efforts many in the lending industry fear that we could see a new surge of foreclosures specific to elderly borrowers with reverse mortgages.
The biggest problem and risk of reverse mortgages is that many elderly people take them out because they are drowning in other types of debt and need cash. They use the cash to pay their debts and their living expenses but put their home at risk of foreclosure because they cannot afford to pay the property taxes or homeowners insurance required by the lender. What’s worse is that many of the elderly borrowers eventually faced with foreclosure didn’t understand the terms of the reverse mortgage. But even recent legislation designed to make sure that elderly borrowers in reverse mortgages are being properly informed of the risks, the possibility of a reverse mortgage foreclosure crisis seems almost inevitable to many analysts.