Falling housing prices can make it almost impossible to get out from under a mortgage you can no longer afford. A new AARP Public Policy Institute analysis says depressed home values are hitting baby boomers and seniors harder than other age groups. Americans over age 50 with homes worth less than their mortgage have a foreclosure rate approximately double the national average, AARP reports.
Foreclosure rates overall on first mortgages are higher for younger borrowers than for those over 50. But older households approaching retirement or already on a fixed income have less time to recover financial losses associated with foreclosure. Some 684,000 Americans ages 50 or older were either delinquent (30 to 180 days late), in foreclosure, or had lost their homes during the six months ending in December 2007, which represents 28 percent of all delinquencies and foreclosures.
Unsurprisingly, having a subprime loan is associated with a higher delinquency and foreclosure rate among all age groups. But AARP says the impact of subprime lending appears to fall disproportionately heavily on older Americans. Homeowners under age 50 with subprime loans are 13 times more likely to be in foreclosure than those with prime loans. At age 50 and above, the number jumps to 17 times more likely to be in foreclosure.
The states where older homeowners have the highest foreclosure rates shadow areas with overall elevated foreclosure rates: California, Colorado, Florida, Nevada, and Michigan.
The study was conducted with a 2.5 million-person random sample that AARP purchased from Experian, one of the three giant credit bureaus. AARP says foreclosure rates among seniors will very likely grow because homeowners are increasingly carrying mortgage debt into retirement.
Another recent paper from the Center for Retirement Research at Boston College projects that as many as a third of older households will be less secure in retirement because of the housing bubble.