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Are Reverse Mortgages Going Bad for Seniors?

Joe Goldman is a staff writer for Equities.com. He is currently working towards his business degree at the University of Southern California’s Marshall School of Business and minors in economics and sports media. At USC, he worked in marketing and sales for the USC Athletic Department. He also worked as a writer for Bleacher Report, where he wrote and published articles of all sports-related topics. Joe has a natural interest in finance, as he traded his first stock in the 7th grade. Writing for Equities.com is his first experience in financial writing, and he hopes to further develop his finance knowledge and writing skills.
Joe Goldman is a staff writer for Equities.com. He is currently working towards his business degree at the University of Southern California’s Marshall School of Business and minors in economics and sports media. At USC, he worked in marketing and sales for the USC Athletic Department. He also worked as a writer for Bleacher Report, where he wrote and published articles of all sports-related topics. Joe has a natural interest in finance, as he traded his first stock in the 7th grade. Writing for Equities.com is his first experience in financial writing, and he hopes to further develop his finance knowledge and writing skills.
Reverse mortgages have grown increasingly popular among retirees over the last couple decades.  However, CNBC’s Diana Olick explained in an article on Tuesday that many of these reverse

Reverse mortgages have grown increasingly popular among retirees over the last couple decades.  However, CNBC’s Diana Olick explained in an article on Tuesday that many of these reverse mortgages are going delinquent and backfiring on homeowners.

According to Olick, about 9.5 percent of the 775,000 outstanding reverse mortgages outstanding are delinquent.  As a result, tens of thousands of retirees are now fighting foreclosure and have little to no equity in their homes.

A reverse mortgage allows the homeowner to take out equity in his or her home in a lump sum or in regular payments. The money is typically used to spend on retirement or pay off a regular mortgage, which is why it’s so popular among retirees.

The problem arises in the agreement between the homeowner and the lender.  Typically, if a couple owns a house together, the lender will put the older person on the loan because older people constitute less financial risk.  However, lenders have been unwilling to put both people on the loan.  As a result, the lender owns the rights to the home when the older person dies and the remaining homeowner is essentially hung out to dry.

The Consumer Financial Protection Bureau, which was formed in response to the housing crisis, has reportedly been made aware of the issue.  They hope to refine the reverse mortgage system and alleviate the financial burden that many retirees are facing because of their delinquent loans.