Millions of older Americans at risk of foreclosure

NEW YORK (CNNMoney) -- A growing number of older Americans are falling into serious mortgage debt, with more than three million borrowers over the age of 50 at risk of losing their homes to foreclosure, according to a recent report from the AARP.

Since the housing crisis started, more than 1.5 million homeowners age 50 or older have already lost their homes to foreclosure, pushing the foreclosure rate among this group to 2.9% in 2011 from 0.3% in 2007, according to the AARP's Public Policy Institute. And another 3.5 million have found themselves underwater, owing more on their mortgage than their homes are worth.

Long believed to be cushioned from the blow of the housing crisis -- because they owned their homes outright or hold large equity stakes that they could draw from in case of financial hardship -- older Americans are "carrying more mortgage debt than ever before."

"As the mortgage crisis continues, millions of older Americans are struggling to maintain their financial security," the report said.

Underlying the problem is that more older Americans have mortgages than they did 20 years ago -- and the amount of debt they owe is much greater.

The percentage of families with mortgages held by someone age 75 or older, for example, jumped to 24.2% in 2010, up from 6.3% in 1989, according to the Federal Reserve. Over the same time period, the amount of mortgage debt this group of borrowers owed jumped to a median of $52,000, up from $11,800.

Many of these older borrowers were saddled with toxic subprime loans issued during the latter years of the housing bubble, said David Jones, president of the non-profit Association of Independent Consumer Credit Counseling Agencies.

Older homeowners were often convinced to refinance their mortgages for more than they owed and use the extra cash to repair their homes or pay bills.

These subprime loans were often enticing because the interest rates were low for the first few years. But the rates jumped after that and borrowers soon found themselves saddled with unaffordable monthly payments.

Compounding the problem was the sharp decline in home values. Nationwide,home prices have fallen about 34% since the mortgage meltdown began in mid-2006, according to the latest S&P/Case-Shiller home price index. But they were specially hard hit in states that attract retirees, like Florida, Arizona, Nevada and California, pushing many of the borrowers that live there underwater on their loans and making them more vulnerable to foreclosure.

Less time to regain ground: When older borrowers lose their homes, there's less of a chance that they will recover financially.

"Foreclosures unduly weigh on older borrowers because so many are on fixed incomes," said Kathleen Day, spokeswoman for the Center for Responsible Lending. "They have little time to rebuild their finances."

Older workers who lose their jobs, for example, have a harder time getting hired than younger workers. And those who do find a job often end up taking a pay cut, making it more difficult for them to afford their mortgage payments, the report said.

And while the economy is slowly recovering and home prices are starting to stabilize, it may be too little too late for many older homeowners -- especially the 3.5 million who are currently underwater on their mortgages.

Many of these borrowers don't have enough time left to rebuild their finances before declining health or disability forces them into retirement and starts eating away at their savings.

The AARP offered up a few recommendations for easing the mortgage problems of older homeowners, including the use of principal reduction, or forgiving some of the mortgage debt that is owed on the home. The group cited growing evidence that default rates decline when mortgage balances are lowered to better reflect current market value of homes.

AARP also said more states should introduce mandatory foreclosure prevention programs. Under these programs, servicers cannot pursue foreclosures until a review and mediation is conducted.

It also recommended stepped up enforcement against foreclosure prevention scams that offer to save people's homes, collect a substantial up-front fee and then do little or nothing.

A recent report by the Lawyers' Committee for Civil Rights revealed that nearly half of these scams roped in older Americans, who lost a collective $16 million to these types of fraud.