Fairness to Home Equity Conversion Mortgages
For many of today’s seniors, life began in the shadow of the Great Depression, and life will end in the shadow of the Great Recession. Meanwhile, seniors’ incomes tend to be stagnant, especially with the recent economic downturn, and the problem is compounded by rising expenses for basic needs such as gas, oil, and groceries, as well as all-important medical expenses. This trend is particularly problematic in a state like Maine, which is the grayest state in the nation. Coupled with the ever-increasing number of baby-boomers approaching retirement, Maine and many other states are at a crossroad: How do policy-makers ensure seniors can retire with dignity, in spite of a down economy, evaporating wealth, and diminished resources for social welfare programs?
Answering that question is not easy, and there are two major directions to take – either relying on the public sector or turning to the private sector. Many states have tried to marshal public sector resources to help seniors with rising property taxes. For example, the Maine Legislature created a program to provide targeted relief to some seniors by calling on the state government to pay municipal property taxes in exchange for priority liens enforceable upon the transfer or death of the property owner. But the public sector proved unable to bear this financial burden, and the program was phased out as the Maine Legislature struggled with budgetary matters in the wake of a shutdown of state government in 1991.
Given the stark economic realities facing the state and federal governments, it is worth asking whether the private sector might be better-equipped to bear this burden, and if so, to what extent government can channel private sector resources to help seniors? The private sector presents several options for senior homeowners – for example, sale, sale-leaseback, retaining a life-estate, a support mortgage, or a reverse mortgage – and there are pros and cons to each, ranging from financial feasibility for sales or sale-leasebacks to the need to curb abusive and misleading practices for reverse mortgages. But in light of emerging data showing that the vast majority of seniors would prefer to age in place and the difficulty many seniors would face generating substantial income from limited equity freed in a sale, sale-leaseback, or sale of all but a life-estate, a reverse mortgage may present a promising option.