By Callie Shanafelt
California Health Report
Twenty-two years ago Robert and Wendy Bickford bought their three-bedroom, 1530 square foot, home in Antelope, California with a swimming pool in the backyard for about $130,000. “We watched the house [being built] from the time it was just a concrete slab,” 62-year-old Robert Bickford said.
“I worked for Oroweat as a bread man for 34 years,” Bickford said. His wife ran her medical transcription company out of the house and they raised their five children. About ten years ago they refinanced to take advantage of low interest rates and take some equity out of the home.
“At one time this house was probably valued at $360,000,” Bickford said.
In 2006 they took out a second mortgage to buy new equipment for the medical transcription business and make some repairs on the house.
Five years ago he retired. Shortly after that his wife lost her biggest client who switched from human to electronic transcription. “We could no longer keep up with the payments that were up on this place,” Bickford said.
So he got a job at Walmart. But he didn’t earn enough money to make up for the loss of medical transcription income. Relatives paid their $1800-a-month mortgage payment for a few months, but a year and a half ago they had to stop paying it altogether.
A common assumption is that senior homeowners are in the best position to weather the mortgage crisis because they bought their homes before the real estate bubble and have more equity. That assumption is wrong, a recent AARP report suggests.
“Don’t think everyone is safe in their homes because they’re older,” said Susan Reinhard, director of AARP’s Public Policy Institute.
The report found that the fastest growing segment of the population in foreclosure or at risk of foreclosure is people older than 50. Serious mortgage delinquency in that age group increased 456 percent between 2007 and 2011.
“Most concerning of this is that age 75 plus are the fastest growing [population],” Reinhard said. “Two out of 3 have no money in retirement saving accounts,” he added.
African-American and Hispanic seniors have double the foreclosure rate of white borrowers on prime loans. “You think of prime loans as being secure,” Reinhard said, “but they are at risk.”
Over the past five years, housing counselors at the Greater Sacramento Urban League have seen an increase of people who are retired or of retirement age seeking their help. “They’re very embarrassed. They feel like they should know better,” said director of the housing counseling program Carolyn Thomas.
Urban League counselors help people take advantage of the federal Making Home Affordable Program to adjust their mortgage payments to be no more than 31 percent of their income.
Thomas says for many seniors, this means showing that they have a financial hardship because they’ve retired or gone on medical disability since the time they signed their mortgage. With the help of a housing counselor, most people who come to their agency have been able to renegotiate their loans.
Thomas says seniors find the process particularly challenging because they aren’t tech savvy. “Things like email and scanning are foreign to them,” Thomas said.
In order to agree on a lower mortgage payment, lenders are often refinancing loans to reduce the interest rate and/or spread out the principal balance over time. For example, if a homeowner has 25 years left on their mortgage, they may extend the loan to pay it off in 35 years instead.
Banks can also forgive up to 30 percent of an existing principal balance, but it gets tricky. If they do, it could count as taxable income to the borrower. Thomas says to avoid that ramification a lot of lenders are cutting some of the principal balance and adding it to the end of the term of the loan. In that case it would only be due when the loan is paid off or the house is sold.
“It kind of gives people breathing room,” Thomas says. “The whole idea is to obtain an affordable payment so that homeowner can stay in their home and we can stabilize the market.”
But some homeowners fall outside of the formula for the program. Thomas says sometimes people come in so far behind on their payments and underwater on their mortgage that it would take months to negotiate a settlement for them. With the three counselors in their office seeing over 500 clients a year, sometimes they don’t have the resources to help everyone.
ECHO Housing in Hayward has also seen an increase in seniors seeking help in the last five years. “It’s getting harder and harder for seniors to pay for meds,” said reverse mortgage counselor Cherisse Baptiste. “They’re living off of credit cards to pay for food.”
Baptiste councils seniors who are exploring reverse mortgages, a special mortgage for people who are equity-rich but cash-poor. They borrow the equity they have in their house to get cash on hand and the loan isn’t due until the house is sold, the borrower moves or when they die.
“For some people it works out great,” Baptiste said. But others decide not to because of the impact it could have on their heirs. She also helps them explore loan modification, selling the home or renting out a room in their house.
Mara, a 61-year-old West Oakland homeowner, works two jobs to pay her bills and help out with her grandson. But last winter her diabetes got worse and she couldn’t work as much. She had to stop making her mortgage payments from January through May and got $7771.85 in arrears on her mortgage.
At one point a company from New York offered to help her renegotiate her payments. She sent them her loan modification paperwork and $4200. When she called to follow-up the phone was disconnected.
Thomas says these types of scams are pervasive. “All homeowners, but especially minority homeowners and seniors have been victimized by scams,” Thomas said.
In order to avoid scams and resolve mortgage issues AARP recommends finding a HUD certified counselor by calling 1-888-995-HOPE.
Mara recently called the hotline and a counselor helped her submit documents to her lender. She says it feels like a third job trying to modify her loan.
Robert Bickford also tried to modify his loan. “I wasn’t looking for them to reduce the principal. I borrowed $230,000, I owe $230,000,” Bickford said. He said if they would lower his interest rate and reduce his mortgage payment from $1800 to $1200 a month he would be able to pay them and keep his home.
For two years he dealt with multiple customer service representatives who often lost the work of previous caseworkers and started the process over again. Eventually, the Bickfords filed for bankruptcy.
“When I got the letter that said they were going to go into foreclosure – I just called a real estate agent,” Bickford said.
His bank agreed to a short sale and they’re now closing with a buyer for $190,000.
After the Bickfords clear out their house they’re going to pack up their travel trailer, hop in their diesel truck, and visit New Orleans, New York and Washington D.C. They hope to make it to the Kentucky Derby.
“When we can’t travel or don’t want to travel anymore we’ll probably just rent an apartment or duplex,” Bickford said. “I think it will work out fine.”
NOTE: AARP’s complete tip sheet on what to do when you are struggling with mortgage payments can be found online.
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