Wednesday, May 22, 2013

Defaults On Mortgages Where Borrower Need Not Make Any Monthly Payments Of Principal & Interest On The Upswing?

The Wall Street Journal reports:

  • Growing numbers of older borrowers with reverse mortgages are delinquent on these loans. But a little-known federal guideline can help steer such individuals out of financial trouble.

    Reverse mortgages allow people age 62 or older to convert their home equity into cash. The homeowner can elect to receive a lump sum, a line of credit or monthly payments. With a conventional loan, such as a home-equity line of credit, a borrower can tap into a home's equity but must make monthly repayments. Reverse mortgages, in contrast, are due with interest when the borrower dies, moves or sells the house.

    Defaults occur when a borrower fails to pay property charges, including property taxes and homeowners insurance. Of the almost 600,000 reverse mortgages outstanding, 9.8% are currently delinquent, up from 8% in 2011, the first year for which statistics are available, according to the federal Department of Housing and Urban Development, whose Federal Housing Administration insures virtually all reverse mortgages.

    Delinquencies have increased in recent years as up to 70% of borrowers have opted for lump-sum payouts.

    "For many homeowners, taking all eligible cash upfront results in insufficient cash flow in later years for property upkeep, taxes and insurance," HUD warned in a November report to Congress.

    The good news: Help is available. Under guidelines HUD released in 2011, lenders—before initiating foreclosure proceedings—are required to notify borrowers who fall behind of free financial counseling. Such sessions can help them get back on track by, among other things, tapping benefit programs for some older individuals.

    Unfortunately, many older borrowers "don't know about these programs," says Ramsey Alwin, senior director of economic security at the National Council on Aging, one of a handful of nonprofits that provide the free counseling.

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