In case you’re not familiar with the particulars of a reverse mortgage, here’s how the scenario works. Often, senior citizens find themselves in the position of being house rich and cash poor, which simply means they have a lot of equity built up in their house but are subsisting on a fixed income, perhaps on Social Security, and with investments that return very little. A reverse mortgage is a financial strategy by which a bank or other financial institution agrees to pay a lump sum or monthly payments to the owners, based on the house’s value and life expectancy. In return, the bank receives the title to the house once both owners have passed away but, until they do, they can continue to live there.

Though closely regulated due to the potential that seniors could be taken advantage of, reverse mortgages have become a popular Golden Year financial decision for many and, with the super-sized Baby Boomer generation stepping into their final decades of life by the millions, expect reverse mortgages to only become more popular.

But if the banks are making payments TO seniors, how could the property ever be in danger of foreclosure? What hasn’t been factored into the equation, until now, is the ongoing existence of certain home related expenses to the owner: insurance premiums, property taxes, maintenance. With the lingering effects of the recession, some seniors have stopped paying insurance and taxes, which leaves the property a prime target for being foreclosed upon. And, apparently, a large group of seniors didn’t realize they were still responsible for these expenses when they signed on the dotted line.

With visions of Freddie Mac and Fannie Mae dancing in its governmental head, the Federal Housing Administration (FHA) is getting nervous about the prospect of being left hanging in a similar manner if reverse mortgaged seniors begin losing their homes to bank repossession. And then there’s the whole aspect of further societal upheaval when these oldsters are turned out of their homes and left to move in with relatives or fill already overflowing nursing homes and income-adjusted senior living facilities – not the style in which any of us want to finish our life on earth.

If you thought the sub-prime mortgage crisis was done unraveling, newsflash, not yet.

The AIPIS Team

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