Are long mortgages and reverse mortgages going to lead to disaster?

Greenspan, in his final official days said 50 year mortgages were coming, and didn’t see anything wrong with them. Americans are in hock at a greater rate than any time in the past, even the great depression. Reverse mortgages are removing all the savings cushions for millions of elderly, the ones most apt to suffer if the trend continues for cutbacks in retirement benefits and health benefits. A single hospital stay can wipe them out.
It seems to me that this process of mortgaging our future, which includes the soaring national debt, just has to lead to wide financial chaos at some point.
What happens when things do reach to far, as they must? Won’t a minor recession lead to mass failures to meet the mortgage, many people out of work and out of housing at the same time? Another great depression?
Shouldn’t we be encouraging saving and ownership and not a nation of people deep in debt?

I’m not sure I understand your concern about these. A 50 year mortgage reduces principal payments, and, if fixed, seems far better than the interest only mortgages that have been popular. It’s not like many people pay off even 30 year mortgages in 30 years these days.

Reverse mortgages convert home equity into income. The only savings affected is the value of the house, but to get at that in any other way the people would have to move, which can have serious problems. (In California it likely results in a higher tax bill.) I don’t know the details, but I assume the unrealized equity gets paid to the owners if they leave early, right? The downside is that the heirs don’t get the house, but if someone needs the money now that should not be a concern.

I’m far more worried about interest only loans and balloon loans and the conversion of equity from the bubble into cash myself. I think that’s where people are going to get hurt.

With a L O O O O N G term mortgage you pay interest forever! Or at least a liftetime, yours or the mortgage co.

A reverse mortgage pays you monthly UNTIL the value is consumed and you are SOL!

You end up the the short end of the stick!

The more I think about this , the more i am convinced that having Americans in debt is the only way for the 3rd world to develop. It is simple-if Americans had a high savings rate, they would not be buying all this junk from China-which would prevent the Chinese economy from growing. The high debt levels in the USA benefit the Chinese economy-and they return the favor by purchasing american bonds. I suspect the bonds will be "paid poff’ via inflation-and everybody will be happy.

That’s not what the Department of Housing and Urban Development says:

That was in response to springears’ reverse-mortgage comment. (Realized after posting that that wasn’t exactly clear.)

Totally agree with all thats said here. Look no further than Japan for the debt free cash rich society, Japanese people save for large purchases, credit is not the norm.

Bring on a financial collapse, memories a very limited when it comes to money some how.

I’ve read articles saying the combination of second mortgages combined with the housing bubble could make for some hard times. People who managed to buy their homes before the bubble are now taking out loans worth several times more than they paid for their house, that don’t represent anything they could actually pay off with their income. Should the housing bubble break, they’ll have no choice but bankruptcy.

>>>Greenspan, in his final official days said 50 year mortgages were coming, and didn’t see anything wrong with them. Americans are in hock at a greater rate than any time in the past, even the great depression.
I don’t think Greenspan saw anything bad in the past five years(its all good), that is why he is bowing out, you hear the economy is booming even though everybody is feeling the pinch. Average income up, median down, hmmmm, tells me something is fishy, could it be that the filthy rich are getting richer and the rest of us poor bastards are getting poorer? I guess that makes for a wonderful economy on paper. A bit short sighted, when all of us poor bastards are even poorer, where does the money come from to make the rich bastards richer, you would think they would like us to have as much money as possible, real money, not fake money based on inflated real estate prices.

I see nothing wrong with a standard mortgage, but 50 years, I can’t even imagine how little is going to principal. $1500 interest and $1.25 to principal. That seems scary to me.

There are only a few things that scare me, but the housing bubble is one of them. I don’t understand what banks where/are thinking giving interest only or less than interest only loans. All this does is drive up prices, meaning the banks are holding titles on property that are overvalued, with no dent in the principal. So when it all goes to hell, what do they do, I’m guessing the CEOs don’t care, they already have their millions, and will collect far into the future for bankrupting a company.

Scary stuff, who has to pick up the pieces(banks going under?), it can’t go on forever. Where my folks live its already happening, prices are dropping. Where I am, the amount of homes for sale is mind numbing. The prices doubled in the past 3 years, and now the for sale signs seem to outnumber the homes, the sad thing is, most of them are foreclosures, and none of them are selling.

I hope I’m wrong, but I see disaster, my reasoning may be off so feel free to correct me, but all I see is a big nasty hole, with no bottom in sight.

I think it’s going to end in tears, like the early 90’s only a lot more serious. If we do see generally declining property prices, then it starts a chain of defaults, more decreasing prices, home repossession, more declining prices, bank/credit union balance sheets start turning red and a 10 year property bust overhang on the economy.

Want to see the future, look at Japan from 1990 to present. They had 50 year mortgages and multi generational mortgages.

What’s important in an economy is the housing affordability. I used to like Greenspan but he lost it with the irrational exurberance speech. He saw the damn stock market bubble but didn’t aggressively try to pop it. Then when it did pop, he turned on the easy credit via home re-financing, which puts us into the present mess. Home prices are too expensive if it takes a 50 year mortgage or IO mortgage to buy one.

american consumers are also GIANT dumbasses to buy this way. It’s a ponzi scheme, IO mortgages make sense if you can flip in 2 years and make a profit. You can only flip in 2 years if enough dubmasses keep buying up property. when the house of cards falls apart, then it all falls apart.

Now, personally, I don’t see the problem with reverse mortgages. If you own your home, it’s about the only form of savings that a lot of retired people have. Why not take it out instead of waiting to die and leave it to your kids?

As someone pointed out earlier, the plus side is that the average dumbass is helping Chinese, Indian and other economies.

So my strategy is to wait for the bottom to fall out and then buy a house with a normal mortgage? (Being 23, in grad school, and single, I don’t really have the money or desire to do anything but rent at the moment.)

One question I have (for those of you in Real Estate): I have been through a couple of these cycles, and I remember when a very upscale developer built a few mansions in my town. They went on the market, just as the bubble popped-and some of them were unsold YEARS later! So, at the very high end, does property move all that fac st once you go into a downturn? man, I’d hate to own something that I couldn’t sell! I don’t think the low end of the market gets hurt so much as the upper end.

The reason that people get the fifty-year mortgages is that they don’t intend to live there very long (usually no more than five years or so). So it doesn’t matter whether they’ve accumulated any equity in the home, since the profits come from the increase in the value of the home (assuming that house prices continue to rise). A buyer might not be able to afford the mortgage payment for a fifteen- or thirty-year loan, but could afford it for the fifty-year loan. (The same thing is true for interest-only loans.)

And as others have said, reverse mortgages are not a negative thing for cash-poor but equity-rich elderly. Really the ones who are hurt by them are the heirs, who won’t inherit a free and clear house.