UF Expert: Reverse Mortgages Can Hurt Elderly, City Economies

December 8, 2004

GAINESVILLE, Fla. — The explosive growth of reverse mortgages can backfire for both elderly homeowners and the nation’s cities, says a University of Florida researcher.

Reverse mortgages — which allow elderly homeowners to borrow against the home’s equity — encourage the elderly to remain in older housing that may be unsafe because of physical deficiencies, said Stephen Golant, a UF geography professor who presented a paper on the subject at a Nov. 27 meeting of the Gerontological Society of America in Washington, D.C., based on ongoing research. That makes deteriorating structures less available to younger homeowners, who are more likely to make improvements to them, which ultimately helps rejuvenate neighborhoods in the nation’s older cities, he said.

“We have to be careful that we don’t romanticize the notion of older people aging in place in their own homes and be blind to the many downsides,” said Golant, an expert on elderly housing who reached his conclusions by analyzing data from the U.S. Census Bureau’s 1999 American Housing Survey describing the characteristics of the accommodations of more than 17,000 older homeowners. Golant, who has studied elderly housing needs for more than 30 years, was recently a consultant to the Commission on Affordable Housing and Health Facility Needs for Seniors in the 21st Century, a panel created by Congress.

Although the elderly generally prefer to remain in their own homes rather than move to nursing homes or other assisted living facilities, many would be better off in new, more user-friendly affordable rental units designed with older people in mind that are close to social services and other sources of support that could help them deal with their frailties, Golant said.

Reverse mortgages allow homeowners 62 and older to borrow against the equity in their home without having to sell it, give up the deed or take on new monthly mortgage payments, Golant said. They are touted by financial experts as a good strategy for low-income seniors to cope with a variety of financial pressures, which include rising out-of-pocket costs for medical care and prescription drugs, inadequate Social Security checks, meager returns from investments and increasing payments for long-term care insurance premiums, he said.

Between April 2003 and April 2004, the number of reverse mortgages in the United States increased by 112 percent, according to published figures released by the National Reverse Mortgage Lenders Association.

Holders of reverse mortgages are isproportionately poor and, because they often are in their 70s and 80s more likely to live alone, Golant said. “In many respects, these are some of our most vulnerable older residents,” he said.

More than half of those mortgage holders occupy dwellings at least 40 years old, which means they’re more likely to live in houses that are run-down, unsafe, unhealthy and uncomfortable.

Because they are frail or fear dealing with home repair workers, older people often don’t make improvements in their homes that could help them avoid accidents, such as installing grab bars in the shower to prevent falls, he said.

“This idea may sound draconian to people who say, ‘Aren’t you sort of pushing older homeowners out of their treasured homes that they’ve lived in for 30 years or more?’” he said. “But we’re really not doing older people a favor by encouraging them to age in place when it’s not particularly advantageous for their health, safety and quality of life.”

Reverse mortgages also are not in the best economic and political interests of mayors of big cities who should be wary about encouraging them, he said.

A new generation of younger homeowners is likely to want to move closer to cities’ downtowns, Golant said. They are much more likely to make home repairs and initiate major home improvements, which not only upgrade urban neighborhoods but reduces poverty and crime, and builds a stronger property tax base, he said.

“The leadership of our major cities should recognize that by endorsing reverse mortgages they may be doing themselves a great disservice, because they reduce the chances their older housing stock will be turned over to younger homeowners and be revitalized,” he said. More than half of the elder-owned and occupied homes in the central cities of the Northeast and Midwest, and about 30 percent of those in the South, were built before 1950, he said.

The problem is not limited to urban centers, Golant said. A high concentration of suburban housing also is older, because suburbs have been forming as early as the end of World War II, more than half a century ago, he said.

James T. Sykes, a senior adviser for aging policy in the department of population health sciences at the University of Wisconsin-Madison, said Golant’s findings are on the “cutting edge.”

“Dr. Golant’s analysis points not only to the need for society to offer appropriate alternatives to remaining in one’s home when living alone in inadequate shelter is not safe, but also to the consequences for elders and their communities of policies that may, unknowingly, undermine efforts to provide the very security and services vulnerable elders need,” he said.