Monthly Archives: August 2019

Hidden Retirement Crisis: Older Americans’ Debt

Researchers are growing concerned about a certain type of borrowing

By Chris Farrell Unretirement Expert August 9, 2019

Swelling numbers of Americans these days are working in retirement, taking part-time jobs and launching businesses. And retirees are increasingly staying in their homes rather than moving to retirement communities. They’re also, however, breaking the mold in a potentially worrisome direction: embracing debt.

The median total consumer debt of households headed by someone 65 or older in 2016 ($31,300) was 2 ½ times what it was in 2001 and nearly 4 ½ times the level in 1989. Some 60% of 65+ households carried debt in 2016, up markedly from about 42% in 1992. Credit card debt and student loans have increased, too.

The rising debt levels among older Americans is not only problematic for their finances, it’s bad for their mental health.

“Starting retirement with debt could exacerbate the impact of any impending negative [financial] shocks.”

“Debt-related stress is a growing concern, given the growing amount of debt held by older adults as they enter retirement,” wrote the authors of Debt Stress and Mortgage Borrowing in Older Age: Implications for Economic Security in Retirement, a paper just presented at the Retirement and Disability Research Consortium, in Washington, D.C.

The scholars behind another paper, Is Rising Household Debt Affecting Retirement Decisions?,  echoed those comments. “Starting retirement with debt could exacerbate the impact of any impending negative [financial] shocks,” they noted.

Why Debt Is Rising for Retirees
What’s going on here?

The debt partly reflects confidence among near-retirees and retirees that they’ll continue earning an income during retirement, allowing them to pay the interest due. The economics behind their increased borrowing also largely mirrors the broader debt binge by consumers of all ages to pay for the rising cost of big-ticket items like cars, homes and college. (For a sad look at this trend, I encourage you to read The Wall Street Journal’s recent poignant piece, “Families Go Deep in Debt to Stay in the Middle Class.”)

Here’s what’s particularly concerning about older Americans’ debt load: Recent action in the bond markets is sending an alarm that the potent combination of trade, tariff and currency wars is slowing down the U.S. economy and possibly hurtling us toward recession.

No one, of course, knows when a recession will arrive. But one surely will sometime, as history has shown repeatedly. That’s why near-retirees and retirees would do well to shore up their finances by reducing, not increasing, debts.

The Debt That Adds Stress the Most

After wading through a stack of scholarly studies about older Americans and debt, my read is that the researchers are plenty worried.

They’ve found that owing money is pushing people in their 60s and beyond to delay retirementpostpone filing for Social Security (so their eventual benefits will be higher) and add stress to their lives.

Ohio State University’s Donald Haurin, Cäzilla Loibl and Stephanie Moulton just released an especially fascinating paper on the relationship between debt and financial stress for older Americans. In it, they described what they found to be a hierarchy of debt, stress-wise.

Credit card debt, they noted, is the most stressful type, with the strongest impact on older adults’ working longer and delaying filing for Social Security. Stress resulting from a $1 increase in credit card debt, they said, is the equivalent of stress due to a $14 to $20 increase in mortgage debt.

And second mortgages (home equity loans and lines of credit) are more stressful than first mortgages, they noted.

The researchers said that reverse mortgages — available only to people 62 and older — are less stressful than regular mortgages, dollar for dollar. But, they added, since reverse mortgage debt grows over time, stress from it may grow over time, too. By contrast, the authors noted, debt from a traditional mortgage declines over time, lowering debt stress.

Barbara Butricia of the Urban Institute and Nadia Karamcheva of the Congressional Budget Office arrived at similar results regarding credit card debt and retirement in a presentation at the Wharton School’s Pension Research Council in May. They calculated that a $10,000 increase in credit card debt for someone age 55 to 70 (with the median amount of credit card debt) raises the likelihood of continuing to work by over 9 percentage points and reduces the odds of receiving Social Security benefits by about 9 percentage points.

Smart Money Advice for People 50+

These studies highlight the rising vulnerability of older adults in bad economic times.

And their findings also suggest a personal strategy to pursue: Pay off your “stressful” debts first.

In other words, if you’re in your 50s or 60s, try to direct cash flow to eliminating credit card debt and second mortgage debt. And if these debts are significant enough to affect retirement decisions, getting rid of them should make a big difference to your future economic security.

You can’t control the swings in the business cycle or the direction of the stock market. You don’t have the authority to force China and the U.S to reach a trade accord. But you can direct more income to debt reduction.

That’s a smart personal finance strategy for all seasons, especially now.

By Chris Farrell

Chris Farrell is senior economics contributor for American Public Media’s Marketplace. An award-winning journalist, he is author
 of the books Purpose and a Paycheck:  Finding Meaning, Money and Happiness in the Second Half of Life and Unretirement: How Baby Boomers Are Changing the Way We Think About Work, Community, and The Good Life.@cfarrellecon

When It’s OK to Retire With Debt

How to Break a Credit Card Addiction

Nearing Retirement? Time to Tackle Your Debt

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FINRA’s NEW Stance On Reverse Mortgage — “use the loan wisely”

HUD opens reverse mortgage doors to CONDO owners, info seminars planned

 

Through a new rule announced recently, the Federal Housing Administration (FHA) is making it easier for condo owners to get reverse mortgages and other FHA financing.

The FHA published a final regulation and policy implementation guidance this week establishing a new process for condominium approvals, effective October 15, which will expand FHA financing for qualified first time homebuyers as well as seniors looking to age in place, the Department of Housing and Urban Development said in a press memo.

In a stated Trump Administration effort to “reduce regulatory barriers restricting affordable homeownership,” the new rule introduces a new single-unit approval procedure that eases the ability for individual condominium units to become eligible for FHA-insured financing. It also extends the recertification requirement for approved condominium projects from two years to three.

The rule will also allow more mixed-use projects to be eligible for FHA insurance, the department said in a press release. HUD Secretary Ben Carson touted the rule’s ability to assist both first-time homebuyers, as well as seniors aiming to age in place.

“Condominiums have increasingly become a source of affordable, sustainable homeownership for many families and it’s critical that FHA be there to help them,” said Carson in a press release announcing the new rule. “Today, we take an important step to open more doors to homeownership for younger, first-time American buyers as well as seniors hoping to age-in-place.”

Reverse mortgage implications

This rule is being implemented partially in response to the demands of the housing market, and is aimed at including reverse mortgages for seniors who wish to age in place in a condominium unit, according to Acting HUD Deputy Secretary and FHA Commissioner Brian D. Montgomery.

“For seniors, part of our mission is to provide affordable options to age in place. Condominiums can make a lot of sense for many seniors [for reasons of affordability],” Montgomery said on a conference call with reporters. “Our single unit review now also includes reverse mortgages, known as Home Equity Conversion Mortgages (HECMs), designed to help seniors age in place.”

In a question and answer session with officials from HUD and FHA, the impact on the reverse mortgage market was additionally clarified in response to RMD.

“Due to the availability for HECM loans to be applied to the single unit approvals, I think that by introducing the single unit approval process, that’s going to provide an opportunity for all borrowers to utilize FHA financing to either acquire new homes, or if they are seniors, to age in place,” said Gisele Roget, FHA deputy assistant secretary of single family housing.

She also clarified that the previous rules governing condo approvals shut out a lot of senior condo owners from obtaining a HECM in the past, and this new rule will help to address that.

“We recognize that many seniors live in condominium projects that were unable or unwilling to go through the process of FHA’s project approval,” Roget said. “And so, by allowing HECM borrowers to utilize the single unit approval for HECMs, they will be able to age in place in condominium projects that do not have the overall FHA project approval.”

The ranges were also extensively deliberated internally by FHA, which can include HECM for Purchase transactions, added Commissioner Montgomery.

“Whether it’s HECM for Purchase or just purchasing a condo for a first-time homebuyer, we’ve spent a considerable amount of time studying the ranges,” Montgomery said. “We wanted to avoid some of the pitfalls of the housing crisis, and this is a message that we heard loud and clear. We’ve worked closely with groups out there, and obviously with our own Office of Policy Development and Research.”

Industry response

Industry participants applauded HUD’s expansion of the rules.

“Condos have become an affordable housing option for seniors, especially in high home value areas, so the FHA’s new policy has the potential to help a large group of older Americans age in place,” said Jesse Allen, EVP of alternative distribution at American Advisors Group (AAG) in an email to RMD.

Others acknowledged that this decision on condominiums has been long-requested.

“After years of working with HUD on this issue, it’s great to see them lift their ban on spot approvals,” said Scott Norman, VP field retail and director of government relations at Finance of America Reverse (FAR). “There is a great deal of demand in the condominium market, so this is very welcome news. While we are still going over the details, this announcement could help qualify tens of thousands of homeowners for reverse mortgages over the next few years and may allow more seniors the opportunity to age in place. We applaud HUD and Commissioner Montgomery for their hard work on this document.”

Some lenders also see this new rule as overcoming cumbersome approval rules which govern full condominium complexes, since homeowners associations (HOAs) often never bothered with applying in the first place.

“Most HOA’s that are not currently FHA approved have little interest in applying for approval. It seems most management companies aren’t open to it or they know there are issues they have run into in the past that prohibit FHA approval,” said Michael Mazursky, president of iReverse Home Loans. “This should definitely help many Seniors qualify for a HECM that in the past couldn’t proceed. The proprietary product has been able to fill the void, but this is a new outlet that should be extremely beneficial to Seniors.”

The industry’s trade association also lauded the new rules’ announcement.

The new rule is posted at https://www.hud.gov/sites/dfiles/SFH/documents/SFH_FHA_INFO_19-41.pdf

 

Could you be a Fix and Flipper in retirement? Talk to us

By Warren Strycker

I work for a lending company as executive (get it together guy) and help folks like you find gainful employment in retiring years. The focus of the Fix and Flip occupation is to help keep income coming in for those in short supply (with building skills). We provide the capital and oversight to make sure you get it right.

No, you don’t have to know how to do “drywall” or “plumbing” or “electrical” but if you got through these many years and kept your bearing, you probably know enough about those skills as you need to direct contractors on your project.

Here’s a model you can follow to keep you on track. We know some of you will need some help finding your way, but when you do, there will be financial benefits that will keep you going as you progress through the steps.

At the heart of FLIP is a proven 5-stage model that really works in any market:

  1. FIND: Select ideal neighborhoods, search for houses and attract sellers.
  2. ANALYZE: Identify the improvements, and analyze the profit potential.3. BUY: Arrange financing, present the offer and close on the purchase.
  3. This is where we pitch in to make financing easy and flawless so you can                         concentrate on other things that matter. We want you to be successful.
  4. FIX: Develop and execute an improvement plan on time and in budget.
  5. SELL: Add finishing touches to quickly sell for maximum profit.

Yes, if you want to talk to somebody about this process, call me and let’s talk. You’ll know soon enough if it fits your goals for retirement.

And, yes, you’ll get to be your own boss and work when you want to. And yes, you could just earn yourself a pile of money.

Warren Strycker, 1-866-334-1200 EMAIL: warren.strycker@patriotlendingusa.com

 

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