For those who relied on low payments from adjustable rate mortgages or perpetually increasing home values to create equity, the subprime crash that occurred in 2007 has wiped out many of the motivations of these products and assumptions. Payment resets can not be avoided when a house is underwater, as owners have no ability to refinance with no equity, locking them into their loan which may double in monthly payment. And real estate does not appreciate by 20% per year forever; eventually, prices have to come back down to the level of affordability. But this wipes out equity for homeowners.
Some borrowers who face monthly shortfalls during retirement due to little investment funds or low Social Security payments may be able to rely on a reverse mortgage to provide extra income. With such a product, a bank will pay off the current loan on the house and give homeowners a set amount of money every month until they die, adding these payments to the loan balance which will be paid off with the estate or through sale of the house. But when house prices fall, there is less equity for such owners to tap into, and banks may not be willing to make this type of mortgage for a property that is underwater. This can remove potentially hundreds of dollars of income per month from retirees unable to qualify for such a loan.
The role of the Federal Reserve in creating, maintaining, and exacerbating the crash also plays heavily into the extra risks retirees will have to take on due to the housing crash. Low interest rates and essentially free money policies helped create a boom in the housing market, while these conditions were held for too long and ensured the boom turned into a bubble. But with the Fed bailing out investment firms and banks to the tune of hundreds of billions of dollars and devaluing the dollar, the prices of nearly everything have risen for the average American.
Home prices were pumped up to unsustainable levels, oil prices seem to go up much higher than they ever come down, food inflation at the supermarket has hit over 10% per year, and currencies all over the world are collapsing against each other. Of course, because the government fudges the inflation numbers, Social Security benefits never keep up with the true cost of living, and those on fixed incomes lose more and more of their purchasing power with each day the government keeps spending and borrowing and the Fed keeps inflating. It should be no wonder if the elderly are unable to afford the fraudulent loan they were given, and can not find any other affordable housing due to rising prices everywhere in the economy.
While the effects of the banks' and the Federal Reserve's policies during the housing boom will effect every American, homeowner or not, the most severe consequences will be felt by retirees or those approaching retirement. Prices are rising in general, home values continue to drop off a cliff, the Fed is creating new "auctions" and "windows" to inflate the dollar, and the government keeps lying about the true rate of inflation. This means that life will get tougher for the elderly and their standard of living decline in proportion to their exposure to the real estate boom even as Social Security payments are kept artificially low and vanishing home equity makes refinancing or reverse mortgages impossible.