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Getting older now means more housing distress

Amma Holmes expected to pay off the mortgage on her Tampa, Florida, home in the next few years. Instead, she lost her job and her two adult sons have moved back in to help pay her bills.
/ Source: Reuters

Amma Holmes expected to pay off the mortgage on her Tampa, Florida, home in the next few years. Instead, she lost her job and her two adult sons have moved back in to help pay her bills.

She isn't alone.

For the first time in generations, getting older means carrying more mortgage debt and less savings into retirement, thanks to the housing crash and rising joblessness among those 45 and older.

The average age of borrowers seeking foreclosure prevention help from CredAbility, a national nonprofit credit counseling agency based in Atlanta, rose this year to 48 from 46 last year, and 43 in 2006.

Holmes, 53, modified her mortgage earlier this year, cutting monthly payments by $375 a month. But she lost her job at Tampa General Hospital, and her sons moved in to help pay the debt.

"In 2014, my house would have been paid for," she said, but the end date is now 2036 after the modification. "I feel good about the modification, but it's like starting all over again."

Holmes originally bought her home in 1993. But she refinanced with an adjustable-rate mortgage in 2006, and then struggled to make payments when her hours were reduced.

With the wage cut, "I was always behind, with my paycheck what it was. I didn't have that much to pay," said Holmes, who is looking for a new position at the hospital where she worked for over 20 years.

Older homeowners are a fast-growing share of distressed borrowers, but have fewer years to recoup declining home equity and greater difficulty replacing lost income.

Unemployment is near record highs for people aged 45 and older, just as they hit peak wage-earning years. The heavy job losses and financial markets crises have eaten away at retirement accounts, hiked medical costs and stifled spending.

"Someone of this age is hoping to have their home paid off by the time they retire, and instead, they're looking at exactly the opposite: the threat of losing that home that they've put years and perhaps decades of responsible payment history behind," said Gail Cunningham, spokesperson for the National Foundation for Credit Counseling in Silver Spring, Maryland.

Dark side of the boom
The share of older owners with mortgages rose during the boom years, when getting loans was much easier and buying second homes or tapping home equity were the norm.

By 2007, in the early stages of the deepest housing crash since the Great Depression, 53 percent of homes headed by owners aged 50 or older had a mortgage — up from 34 percent two decades earlier, the AARP said, citing Harvard data.

And more of those people are out of work or carrying more debt. Older workers have higher salaries, and often rack up credit-card debt while unemployed as they try to find a job commensurate with experience.

Median weekly earnings were highest for workers aged 55 to 64, followed by those aged 45 to 54, first-quarter data from the federal Bureau of Labor Statistics show.

But unemployment in those age groups is at levels not seen since the postwar period: At 7.7 percent for the 45- to 54-year-old group, just below a record 8 percent last September, and 7.1 percent for workers 55 and over, a hair below last December's record 7.2 percent. These BLS records date back to 1948.

Starting over, again
For the first time, lower income due to unemployment and underemployment was the main motivator for credit counseling last year, Cunningham said.

"Prior to that, the No. 1 reason had always been financial mismanagement," she said.

Last year about one-quarter of the 4 million consumers NCFF counseled sought help for mortgage troubles. More than half of those borrowers were 45 or older.

Retirement plans are interrupted as many struggling older borrowers seek full- or part-time jobs to supplement income.

With many of these borrowers "taking a significant hit in both home value and retirement savings, you're seeing a lot more people eventually dropping out of the middle class," said David Certner, the AARP's legislative policy director.

Home price losses averaging 30 percent from the 2006 highs also decimated equity for many borrowers, shutting down another source of spendable funds and making refinancing impossible.

"There isn't the cash and equity available to be able to do renovations and improvements or other consumer spending," said John Taylor, president and chief executive officer of the National Community Reinvestment Coalition in Washington. "It's going to contribute to a negative pull on our economy."

Making foreclosure prevention mandatory for lenders is critical to stabilize housing prices, aid more senior homeowners and build future economic growth, he contends.

Craig Thomas, senior economist at PNC Financial Services Group in Pittsburgh, said that while the bleeding stopped in some housing markets, others with high concentrations of older homeowners, such as Florida or the Upper Midwest, still suffer.