SOME HOMEOWNERS DEFAULT ON REVERSE MORTGAGES
September 7, 2010: When reverse mortgages were last reviewed, it was predicted that many unqualified borrowers would wind up defaulting, despite the fact that a reverse mortgage has no payment due.
As originally conceived, reverse mortgages were designed to fulfill a legitimate borrowing need. Reverse mortgages were developed for elderly Americans who had a mortgage free home with substantial equity and wanted to cash out their home equity to supplement their retirement income without having to sell the house or face large mortgage payments.
Many homeowners taking out reverse mortgages were taking the maximum loan allowed upfront (instead of taking a monthly draw) and using the proceeds to payoff existing debt. This choice left the elderly homeowner with little equity and no monthly cash payment to supplement retirement, a recipe for financial disaster.
It now appears that, as predicted, many elderly reverse mortgage borrowers cannot afford to pay the property taxes due on their homes or are strategically chosing default since the decline in property values wiped out whatever equity they had left. The end result is the predicted and ridiculous situation of borrowers defaulting on mortgages that do not have payments claims Mortgaged Future.