As Bills Mount, Debts on Homes Rise for Elderly
By JENNIFER BAYOT
As Americans have rushed to borrow at historically low interest rates, an unlikely group has led the charge: the elderly.
As a result, the cushion that could provide financial security for older people — their homes — is no longer so secure. People reaching retirement age are now less likely to own their homes free and clear than their predecessors, according to an analysis of government housing and Census data.
One in four families headed by someone 65 or older still had a mortgage to pay in 2001, the most recent data available. In 1989, just one in six still had house payments to make.
For many aging Americans, lingering expenses from their peak earning years, like car payments and college tuition for their children, have made it difficult to rip up their mortgages. Others have taken out fresh loans on their homes to pay off other debts, help their children and cover medical expenses.
Some brush off concerns, saying they expect to live longer and to work longer. Why not take out a 30-year home loan at age 65 to raise cash now? At low enough interest rates, the monthly housing payments could remain manageable.
But as older borrowers try to stretch what are often fixed incomes to cover the payments, they are increasingly putting their homes at risk, running into financial trouble, turning to their adult children for help and even filing for bankruptcy protection, policy groups and bankruptcy lawyers say. Many are forgoing retirement and taking on part-time work.
As a group, people over 65 have the distinction of having not only the fastest-growing home debt, but also the fastest-growing share of personal bankruptcy filings and the biggest growth in demand for credit counseling.
At 71 and 77 years old, respectively, James and Doris Stevenson of Espanola, N.M., have 29 years left on their mortgage, which they recently refinanced for a lower interest rate.
They live in their dream home, Mr. Stevenson said - a pueblo-style house overlooking the Rio Grande. The couple, retired teachers, bought it six years ago by using two-thirds of Mr. Stevenson's retirement fund for a $35,000 down payment.
To chip away at the remaining $75,000 or so, he occasionally coaches high school teams and serves as a church pastor, and both work at local polls during elections.
At one point, the mortgage costs made it difficult to meet their credit card payments, so they sought credit counseling and entered a two-year repayment plan, which they have since completed.
Mr. Stevenson says that battling their debt has already taken too much of a toll. He even believes it contributed to a heart attack he had in late 2002. "I was told it had to do with stress," Mr. Stevenson said.
Mortgage debt owed by older households nearly quadrupled between 1989 and 2001, even after accounting for inflation, according to an analysis of Federal Reserve data by Zhu Xiao Di, a research analyst at the Harvard Joint Center for Housing Studies. In 2001, the typical household headed by someone 65 or older had $44,000 in mortgage debt, compared with $12,000 in 1989, Mr. Zhu says in a forthcoming paper. The mortgage debts of younger homeowners, though still considerably larger at $75,000 on average, grew barely a fifth as quickly.
Although much of the increase is doubtless a result of homeowners tapping rising home values, borrowers must still find the money to make the payments while living on limited incomes.
"All the indicators would suggest that there is increasing debt being assumed by older Americans," said Nicolas P. Retsinas, director for the Harvard Joint Center for Housing Studies. "It used to be the notion that when you were old, you wanted to extinguish your mortgage. Increasingly, people don't look at it that way. They look at their home as liquid; it's a way to substitute cheaper debt for higher debt."
While home loans are usually their biggest payment, the elderly have been rapidly accumulating other debt as well. Credit card bills - to cover everything from minor emergencies to ongoing essentials - have risen sharply. All told, the debt burdens of borrowers between the ages of 65 and 74 doubled between 1992 and 2001, compared with an increase of 83 percent for the general population, the Federal Reserve says.
Even as interest rates have fallen, private surveys make clear that the debt burden for the elderly is still rising, although it remains far below what younger Americans owe. Of course, low interest rates have encouraged just about everyone to take on more debt, but other age groups have years of earnings ahead of them to pay off the debt.
Whether such debts are of little concern depends on how much wealth and income older borrowers have on hand. While Fed data show that, as a group, older Americans possessed more assets in 2001 than a decade ago, those assets grew only half as quickly as their debts. Census data show that their incomes over the same period remained flat.
To Mary Caspermeyer, even 40 percent sounds bearable. Her mortgage and car payments, she said, now consume almost all her income, which includes a small pension, Social Security and hourly wages from working as a medical technician.
Mrs. Caspermeyer, who is 67 and lives in O'Fallon, Mo., explains that she and her husband had paid off credit card debts and helped their children with expenses by refinancing their mortgage and taking out a second one. But after her husband died last year, his monthly Social Security check of $1,400 stopped coming. Now, she is unsure what to do.
"I don't want to file for bankruptcy," she said. "I don't know if I can work the rest of my life. And I don't think anybody wants to be a burden to their kids."
Credit counselors are where many turn for help. Money Management International, which is based in Houston and is one of the country's largest credit counselors, says its overall client base has grown by a modest 3 percent in the past year, but almost 40 percent among people who are 65 or older. One in 10 of its current clients is of retirement age.
Those in the worst shape file for bankruptcy protection. From 1997 to 2001, bankruptcies among the elderly tripled to 82,000, says the Consumer Bankruptcy Project, a consortium of university researchers. The number of people 65 or older grew only 3 percent during that time.
Why is this happening, given that over all the elderly are financially better off today than in any previous generation? In various consumer surveys and bankruptcy studies, heavy health care expenses are consistently cited. "It's always medical bills - and credit cards to pay for medical bills," said Barbara May, a consumer bankruptcy lawyer in Arden Hills, Minn., and a board member of the National Association of Consumer Bankruptcy Attorneys.
She described one of her current cases, involving an elderly couple who have amassed $44,000 in credit card debt largely for medications to treat heart disease, high blood pressure and diabetes, among other ailments. Ms. May described the couple's adult son weeping in her office.
"Before, I would have one of these horror stories a year," she said. "Now I'm getting two a month."
But bankruptcy lawyers say another reason for distress is that more of their elderly clients are also helping out their adult children.
In studying bankruptcy filings in 2001 as a member of the Consumer Bankruptcy Project, Elizabeth Warren, a professor at Harvard Law School, found the trend startling: "I was very surprised to see the number of older people who explained their bankruptcies in terms of their children's failed marriages, their children's drug addictions, their children's lack of health insurance. The impulse to take care of one's children never goes away."
For Ruth Gibson, 70, having two of her adult sons living in her four-bedroom Chicago home assuages loneliness. But paying for much of their medical and living expenses as they look for steady work helped push her into bankruptcy proceedings in 2001, shortly after her husband of 51 years died, and has since threatened her with foreclosure.
"I always pictured it as some place that my kids would have to come to," she said.
Advocacy groups accuse some lenders of seeking business from vulnerable older people with little regard for their ability to pay.
Many banks seem to issue credit cards indiscriminately, they said, while mortgage lenders offer people payment terms they cannot possibly meet, made even worse by wrapping other debts into the loan.
Lenders, for their part, point out that a few bad apples do not represent the industry and that they are careful to extend the same offers to people no matter their age to avoid accusations of discrimination.
Timothy Williams of Chauvin, La., says that a credit card stranded his mother, Eula Williams. At 85, Ms. Williams owes $8,000 on the card, which was offered to her by telephone marketers and mailed to her without even an application form.
"They called and asked me all kind of stuff, and I don't hear too good," Ms. Williams said. Living on Social Security payments of $600 a month, she received a card with a $7,000 limit. She used it to buy Christmas presents and groceries.
Mr. Williams said he was giving her some spending money each month - but by the time he found out about the credit card, the balance had grown to $6,000 and a collection agency was calling.
After trying unsuccessfully to negotiate with his mother's creditor, Mr. Williams advised his mother to ignore the debt.
"I'm 85 years old; I can't live forever," said Ms. Williams, who still receives offers for credit cards.
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