AARP Bulletin - November 2010

; Your Money
When it comes to foreclosures, “it
doesn’t change the overall progno-
sis,” says Rick Sharga, a senior vice
president at Realty Trac, a Califor-
nia listing firm. By his projections,
it may well be 2014 before the fore-
closure inventory is cleared out and
home prices start rising again.
Meanwhile, bank repossessions
are running at a record high. Nearly
100,000 homes were seized in Au-
gust alone as the foreclosure crisis
continued its assault on American
neighborhoods.
The economic downturn, with its
staggering loss of jobs and income,
is the primary cause of the latest
round of homeowner anguish.
By the end of December, the 2010
toll of foreclosures could be more
than 1 million homes, experts pre-
dict. That’s in addition to some 2. 5
million foreclosures since the start
of the recession in December 2007.
The second wave is engulfing a
di;erent type of homeowner. In the
first round, “we saw exotic loans
and people overextending them-
selves, buying expensive homes,”
says Sharga. “Now we’re seeing
fixed loans in default by people
who simply don’t have a job. And
there could be a third wave coming,
which is the frightening part.”
By next year, he says, about $300
billion in adjustable-rate loans
will reset to higher payments and
interest rates that many borrowers
won’t be able to a;ord.

More homes underwater
The economic conditions contribut-
ing to the housing collapse show few
signs of improving. Unemployment
remains stubbornly high, at more
than 9 percent, consumer confidence
is low, and property values will likely
continue to depreciate as more fore-
closures add to the housing glut.
According to First American
CoreLogic, a Santa Ana, Calif., re-
search firm, declining home values
have pushed nearly 25 percent of
all mortgaged properties “under-
water,” meaning they’re worth less
than the amount owed on them.
For near-retirees who have been
depending on the appreciation
of their homes to plump up their
nest egg, the situation may be even
worse. Of mortgaged households
headed by people ages 45 to 54,
about 30 percent would have to
bring money to the table if they
sold their home, according to a 2009
study by the Center for Economic
and Policy Research. About 15 per-
cent of households headed by adults
55 to 64 were in the same boat.
Some owners of underwater homes
are doing what was once unthinkable.
Even though they can afford their
payments, they’re walking away.
These so-called strategic defaults are
likely to become a growing problem
in states with rapidly falling property
values like Nevada, where 68 percent
of mortgaged properties are under-
water; Arizona, with 50 percent; and
Florida, with 46 percent.
“Strategic defaults are something
we’ve never had to deal with his-
torically. People have always done
everything possible to hang onto
For generations, Americans
paid off their mortgages as
they headed into retirement.
That has now changed.
Today’s retirees are just as
likely as younger folks to carry
housing debt. Of adults age 65
and older, one in three had a
mortgage in 2007, with a me-
dian debt of $60,000. In 1989,
it was one in five, with a median
debt of about $15,000.
A mortgage
in retirement?
Of adults ages 55
to 64, nearly two
in three had a
mortgage in 2007,
with a median
debt of $85,000.
“You have more people
carrying mortgage debt into
their retirement years, and the
amount is much higher than
before,” says Zhu Xiao Di, a
researcher at the Joint Center
for Housing Studies at Harvard
University.
“That is not good news.”
If you’re falling behind on your
mortgage or face foreclosure:
; Check out findaforeclo
surecounselor.org to locate
a government-approved
housing counseling agency in
your community, or call the
Homeownership Preservation
Foundation’s HOPE Hotline
toll-free at 1-888-995-4673.
; Go to makinghomeafford
able.gov for comprehensive
information on homeowner
assistance programs.
; Go to loanscamalert.org
to learn how you can avoid
loan modification scams.
Where to get help