A growing number of U.S. baby boomers are dealing with their parents' home loans, some of which are threatening their own inheritances. Reverse mortgages allow consumers at least 62 of age to borrow money against the value of their homes, and they do not need to be repaid until they move out or die. Federal rules give survivors the option of settling the loan for a percentage of the full amount, but reverse mortgage companies are increasingly threatening to foreclose unless they are repaid in full.
Interviews with more than four dozen housing counselors, state regulators, and 25 families have shown that some lenders are starting the foreclosure process mere weeks after a reverse mortgage borrower dies. Others say that, soon after their parents' deaths, they enter a bureaucratic maze as they try to figure out how to keep the family home. It is unknown just how many heirs are facing foreclosure because of their relatives' reverse mortgages, but it appears to be a growing problem that may affect tens of thousands of people. The combined debt of Americans aged 65 to 74 is rising faster than that of any other age group, the Federal Reserve reported. About 13 percent of outstanding reverse mortgages are underwater, consulting firm New View Advisors estimates.
Reverse mortgages have seen a decline since the financial crisis, falling to 51,000 in 2012 from a peak of about 115,000 in 2007. The rate of default, however, rose to about 9.4 percent of loans in 2012, according to the Consumer Financial Protection Bureau, up from just 2 percent in 2002.