Monday, July 23, 2012

The Foreclosure Crisis for Older Adults: Part I - The Problem


This morning was AARP's Solutions Forum: "The Foreclosure Crisis - Ending the Nightmare for Older Americans," at the Columbus Club in Union Station.  Panelists discussed the conclusions and implications of the recently released report, "Nightmare on Main Street: Older Americans and the Mortgage Market Crisis."  While AARP released "A First Look: Older Adults and the Mortgage Crisis" in 2008 (the first study to look at age differences in the growing foreclosure crisis) this new report is the first one that looks at the progression of the foreclosure crisis for older adults.

Debra Whitman, AARP Policy EVP discusses her reactions to the report in this AP video: 

A few findings from Lori Trawinski's new study grabbed my attention:
  • For 50+ homeowners, the foreclosure rate grew over 8 times between 2007 and 2011, and the rate in 2010-11 is several times higher than the rate for those under 50 in 2007-2008. Both rates rose over the timeframe - in 2011, the 50+ foreclosure rate was 2.9%, and the under 50 foreclosure rate was 3.5% of all loans. Put another way, if 50+ America was a single neighborhood of 35 homes, one of them would be foreclosed on - the stability that we assume for older adults isn't there.
  • For homeowners aged  75+ and 50-64, the "serious" delinquency rate is higher than for those aged 65-74.  One way to interpret: the general crisis among underwater homeowners of working age who have lost work or have reduced incomes, and are unable to sell their homes for more than they owe on their mortgages expands to those age 64, and the higher rates are evidence of this.  While those who are 65+ are usually retired and traditionally have paid off mortgages, that has changed recently, and more now own with mortgages - they are the next at-risk group (see  my report Housing Older Adults: Impacts of the Recession for more on this shift) but aren't at that highest risk-level yet.  For those 75+, they are dealing with higher costs (as are other age groups), but their length of time living on a fixed income and the increased risk of a costly health incident or change in needs as they age are likely contributors to their higher foreclosure rate - remember that foreclosures can occur when it is impossible to sell the home for what is owed and some negative income change (or higher expenses) eliminates other options and forces a change in residence.

  • The 50+ Latino foreclosure rate is slightly higher than the 50+ African American rate and roughly twice the rate for 50+ white homeowners, and sub-prime loan delinquencies are over five times higher than prime loan delinquencies for the 50+.  Sub-prime loans impact the older population as they do younger households - the "poor performance" of these loans and the higher percentages of people in these racial/ethnic groups with these loans naturally leads to more foreclosures. As Trawinsky says, "the poor performance of subprime loans regardless of income level... reinforces the belief that the design of these loans makes them unsustainable in the long term."

    I share that belief, and it is clear that the policy goal of  raising the homeownership level and closing the racial homeownership gap in the last couple of decades was fundamentally flawed: we did not focus on rates of "sustainable homeownership."  Raising the rate temporarily has now led to stripping wealth from many who could not maintain homeownership over the long term.
While Trawinski's report  focused on the national level, state data should be coming soon. (State data from our previous 2008 study is available as part of State Housing Profiles 2011.) This level of anaalysis  important, as foreclosures and delinquencies are not national phenomena, but are based on regional or local real estate markets. While prices have stabilized in many parts of the country, they are still dropping in certain pockets - particularly those that saw large gains in homeownership in the years before the crisis began.

For more on solutions, see part II, where I focus on the forum's panel discussion.

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