More and more Americans in their sixties are not being helped by their mortgage lenders because of the mortgage industry's current problems related to foreclosures. They have accumulated equity levels much higher than the younger homeowners, but they have no more money and income to continue with the payments.



The case of a 66-year-old widow who owes a mortgage loan of $400,000 on a residential property worth $1.15 million is illustrative of the situation of older homeowners during these times of continued foreclosures. This widow has asked her lender to modify her loan so that she can continue living in her house and so that she is able to make the necessary monthly and tax payments.

A typical financial counselor would advise the widow to turn the existing mortgage into a reverse mortgage so that she can make use of the large equity on her house. But, as continued foreclosures have depleted the finances of many private mortgage banks, reverse mortgages in higher amounts have not been made available. Even the Home Equity Conversion Mortgage offered by the Federal Housing Administration has limits.

One possible solution for the widow is loan modification. But as she has discovered, the lender refused to modify her loan because she has been current with her payments. Her lender told her before any loan modification is carried out, she has to be in default, which she has refused. She does not like even just the thought of foreclosures.

Another option the widow can consider is taking a credit line based on her home equity. This option is being used by a lot of homeowners with large equities to help them cope with these difficult times caused by continued foreclosures. Typically, credit line rates apply the prime rate, which is currently at 3.25 percent. Assuming the widow's mortgage rate is 6.5 percent and that her lender gives her an adequate credit line at 2.5 percent, this option is attractive and feasible.

The only drawback to this credit-line option is the volatility of prime rates. In 1980, the prime rate soared from 13.5 percent in just a period of two months to 21.5 percent. The high jump was unusual, as it was pushed by different factors that included foreclosures.

Among the available options, probably the best one to consider is refinancing from a fixed-rate mortgage of 6.5 percent to a credit line of 2.5 percent. Assuming that the prime rate increases by one percentage point per year, the break-even point takes place in about 7 years. But the safest option would be a loan modification meant for cases like the widow's under Obama's program to avert foreclosures.