America's retirement crisis is forcing some Baby Boomers with very little in their savings accounts to make some drastic decisions. Many folks approaching retirement age have at least one major asset: Their home. There are few that will outright sell their properties, but a growing number are doing the next best thing: Taking out a reverse mortgage.
It's likely that you've seen a few commercials about the program. You hand over your house to a bank or the government, and they write you a check every month for the rest of your life. You don't have to pay anything back unless you move out of the house.
The number of reverse mortgage borrowers increased 20 percent between 2012 and 2013, and that figure is expected to continue rising as more Boomers continue entering retirement. This may seem like a great deal for everyone involved, but big lenders like Wells Fargo and Bank of America have backed away from them, wanting nothing to do with the business. According to Reuters, unpredictable housing values and a high number of delinquencies in the past have pushed the financial institutions away from this type of loan.
The Federal Housing Administration (FHA), is finding reverse mortgages to be risky as well. The government agency received a $1.7 billion taxpayer bailout last year largely because of these loans.
"The FHA is at risk from these loans, and the taxpayers are at risk too," James Bothwell, a consultant for the Federal Home Loan Bank system, told Reuters.
Retirees who choose to take out a reverse mortgage often get a bum deal as well. Their houses are regularly under valued and they still have to pay lender fees.
Trying to save for retirement? Maybe it's time to consider alternative wealth preservation strategies.