Elderly Face Home Refinance Roadblock
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UPDATED: Nov 14, 2012
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Despite having $2 million in retirement assets and excellent credit, Art Grossman, 61, failed to qualify for a home refinance.
“I’m not working. I have severance, but that runs out in April,” Grossman told the Chicago Tribune.
Unfortunately for Grossman and many like him, lenders require a stream of income in order to approve a home refinance. This makes refinancing difficult for many home refinance applicants that are elderly and no longer working.
“We don’t have any proactive program to help people before they get into trouble. I would guess that eight out of 10 times a borrower went to their lender with those circumstances, they’d be told they couldn’t be helped,” said Guy Cecala, of Inside Mortgage Finance, in an interview with the Chicago Tribune.
Across the country, homeowners are struggling with property-related financing issues. According to the AARP, 16 percent of home loans owned by Americans over the age of 50 are underwater. In August, 60,600 more homes entered into foreclosure as a result of default. Many elderly people have entered into retirement but lack the savings or financial skills to keep their heads above water.
“We’ve seen quite a few people hit hard on their 401(k)s. They didn’t make any adjustments to their savings, and now they’re retired and don’t have enough money,” said Billie Passmore of In Charge Debt Solutions, according to the Chicago Tribune.
Some elderly homeowners have run up credit card debts as a result of their lack of income. Worse still, many in their old age suffer from medical problems that further drain their resources.
“It’s very, very sad. You wish we could have gotten to them 20 years ago,” said Passmore.
Exacerbating the problem is the fact that the process of qualifying for a home refinance takes longer.
“The banks are going to look at every single little thing, and they’re backlogged,” said Perry Harmon at Financial Strategies Group in an interview with the Columbus Dispatch.
While Grossman’s situation appeared dire, he fared better than many backlogged applicants.
He was eventually able to obtain a home refinance by having his retirement account regularly withdraw $8,000 a month. As a former employee in the financial industry, Grossman is preparing to take steps to refill his retirement account.
“Once this loan [is funded], I’m taking the money I withdrew and putting it back in the IRA,” said Grossman.
Unfortunately, not all elderly borrowers are as financially savvy as Grossman, or even have the savings that would allow a monthly withdrawal worth thousands of dollars.
“This is the paradox. Because sometimes you’re trying to do a refinance for clients who are currently carrying a payment larger than the one I’m going to refinance, and they haven’t missed a payment in 40 years. But if there’s no income, there’s no payment amount you will qualify for. Somebody explain this one to me,” Mortgage loan originator Michael Rosenbaum told the Chicago Tribune.
There is still hope for those elderly homeowners who own houses with equity since home refinances require borrowers to have sufficient equity to meet qualification requirements.
“I’m certainly advising clients if they’re not underwater to definitely lock in the best fixed rate they can,” said Michael Olff, a financial planner with Gateway Financial Advisors, according to the Columbus Dispatch.
At the end of the day though, elderly borrowers seeking a home refinance may have some tough financial decisions to make.
“It really depends on the person’s financial plan and risk profile. Do you want your house paid off, or a mortgage you have to pay out of your 401(k) or Social Security?” asked Olff.