When I was on the buying side of real estate, a paid-off house owned by an older couple with no plan was the easiest conversation I ever had. I would knock, they would be overwhelmed, and the home would change hands for a number that made my year and cost them theirs. I am not proud of that. It is the exact reason I read government audits about reverse mortgages now instead of working angles around them.
And one of those audits this spring is worth your attention, because it points at a problem that hides inside a financial product millions of older homeowners think of as safe and finished.
Here is the short version. A reverse mortgage is not a set-it-and-forget-it product. It is a loan with moving parts. And the moving parts just started moving faster than anyone planned for.
What the federal watchdog actually found
The U.S. Department of Housing and Urban Development runs the country's main reverse mortgage program, the Home Equity Conversion Mortgage, or HECM. For borrowers the program considers financially vulnerable, HECM requires a special account called a Life Expectancy Set-Aside, or LESA. The LESA exists to pay the borrower's property taxes and homeowners insurance, so the senior does not fall behind on the two bills that can trigger a default.
In a recent audit, HUD's own Office of Inspector General found that those set-aside accounts are draining roughly six years sooner than the program assumed. Auditors reviewed loans with early signs of depletion and found that most sampled cases were already empty or projected to run out about six years ahead of HUD's estimates. The watchdog flagged more than 1,200 borrowers at heightened risk, and pegged HUD's own potential losses at up to $258 million, as reported by HousingWire in May 2026.
The cause is not exotic. It is the same thing squeezing every homeowner in America right now. Property tax assessments and homeowners insurance premiums have climbed faster than the numbers baked into those accounts years ago. The cushion was sized for a gentler world.
Why this is a quiet emergency, not a headline
The dangerous part of this story is how invisible it is. A reverse mortgage statement looks fine month after month. The set-aside is doing its job, paying the taxes and the insurance on schedule, and the family relaxes. Nobody is watching the balance trend toward zero.
Then comes the year the account is empty. Suddenly the homeowner, often someone in their eighties on a fixed income, has to start paying the full property tax bill and the full insurance premium out of pocket. If they cannot, they fall behind. And falling behind on taxes or insurance is one of the few things that can push a reverse mortgage into default. A defaulted reverse mortgage puts the home itself on the line.
So the family that thought the house was handled discovers, with almost no warning, that it is not. That is the trap. It is not that reverse mortgages are evil. It is that the part most families never understood, what happens when the cushion runs out, is now arriving years earlier than the paperwork promised.
The bigger picture: care costs are the reason this matters so much
Step back and the reverse mortgage problem is really a symptom of a larger squeeze on older families: the cost of care has gotten enormous, and the home is usually the only asset big enough to cover it.
The 2025 CareScout Cost of Care Survey, published by Genworth, lays the numbers out plainly. The national median cost of assisted living is now $6,200 a month, which is $74,400 a year. A semi-private room in a nursing home runs about $114,975 a year, and a private room about $129,575. In-home, non-medical caregiving sits around $35 an hour, which works out to roughly $80,000 a year at 44 hours a week.
Those are not numbers most retirement accounts absorb easily. For a huge share of middle-income families, the only asset large enough to fund years of care is the paid-off home. Which means the home is doing double duty: it is where your parent lives, and it is the war chest for the care your parent may need. A reverse mortgage that quietly defaults does not just cost a house. It can wipe out the one funding source the family was counting on.
What it means for your family
If there is a reverse mortgage anywhere in your family, this is not a someday problem. Here is how I would think about it.
First, understand that the home is a financial instrument now, not just a place. The decision about whether to keep it, sell it, or borrow against it is one of the highest-stakes financial moves your family will make, and it deserves to be made on purpose, not in a panic.
Second, understand the timing trap. The single most expensive mistake I watched families make, over and over, was waiting until a crisis to decide what to do with the house. A fall, a stroke, a diagnosis, and suddenly the home has to be sold in two weeks, while the family has no time, no information, and no leverage. That is exactly when a house gets dumped for less than it is worth, and a buyer like the old me walks away happy. A home sold under deadline gets the deferred-repair discount priced straight in.
Third, understand that the protection is mostly attention. Most of what goes wrong here goes wrong because nobody was looking at the right number at the right time.
Step-by-step: what to actually do this month
Step 1. Find the projected depletion date.
If your parents have a reverse mortgage with a LESA, call the servicer and ask directly: when is the set-aside projected to run out? Get it in writing. If the answer is sooner than you expected, you have just bought yourself time to plan instead of being surprised.
Step 2. Put the future tax and insurance bill in the budget now.
Once the set-aside empties, those two bills land on the household. Add them to the budget today as a future line item, so the cash is identified before the account hits zero, not after.
Step 3. Run the stay-or-sell math while everyone is calm.
Do not wait for the crisis to ask whether the home should be kept or sold. There is a break-even number on staying home versus moving into care, and almost nobody runs it. Run it now, when you can think clearly.
Step 4. Map the funding plan against real care costs.
Use the actual cost-of-care figures for your area, not a guess. If assisted living is $74,400 a year and the plan is to fund it from home equity, you need to know how many years that equity actually buys, and what happens after.
Step 5. Protect the title while you are at it.
Older, paid-off homes are also the prime target for deed and title fraud. While you have the deed out, sign up for your county's property records alerts if they offer them, and confirm the owner of record still reads your parents' names. It costs almost nothing and closes a door predators count on staying open.
Frequently Asked Questions
Can you lose your house with a reverse mortgage?
Yes, in specific situations. A reverse mortgage does not require monthly principal and interest payments, but the borrower must keep up with property taxes, homeowners insurance, and basic upkeep, and must keep living in the home as a primary residence. Falling behind on taxes or insurance can trigger a default, which can lead to foreclosure. The recent HUD audit matters because the accounts meant to prevent exactly that are running dry early for over 1,200 borrowers.
What is a LESA on a reverse mortgage?
A Life Expectancy Set-Aside, or LESA, is an account set up within certain reverse mortgages to pay the borrower's property taxes and homeowners insurance. It is required for borrowers the program considers at higher risk of falling behind. The 2026 HUD Office of Inspector General audit found many of these accounts are depleting about six years sooner than projected, because property taxes and insurance premiums rose faster than expected.
How much does assisted living cost in 2026?
According to the 2025 CareScout Cost of Care Survey, the national median cost of assisted living is $6,200 a month, or $74,400 a year. A semi-private nursing home room runs about $114,975 a year, and a private room about $129,575. Actual costs vary widely by location and care level.
Should we sell our parents' home to pay for care?
Sometimes it is the right move, sometimes it is not, and the only way to know is to run the numbers before a crisis forces the decision. Compare the cost of staying in the home, including any modifications, against the cost of care plus the equity the home could provide. The worst outcome is selling reactively under deadline, which usually means selling for less than the home is worth.
How do I protect my parents' home from deed theft?
Sign up for your county recorder's property records alert service if one exists, so you are notified the moment anything is filed against the home. Pull the deed once a year and confirm the owner of record has not changed. The FBI's latest data shows people over 60 absorb a disproportionate share of real estate fraud losses, and the defense is mostly just checking.
About Ryan Riggins
Ryan Riggins is a senior transition advisor and former house flipper. After 8+ years buying homes from families in transition, he walked away from the cash-buyer side to help families avoid the $50K mistakes he used to profit from. Based in Greensboro, NC. NC Real Estate License #361546, eXp Realty. Founder of Riggins Strategic Solutions and the SeniorSafe app.
Run the stay-or-sell math first. The free Strategic Exit Engine walks through your options when there is a mortgage, a reverse mortgage, or a care bill in the picture: rigginsstrategicsolutions.com/tools/strategic-exit-engine
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Coordinate your family in one place. SeniorSafe app (web, iPhone, Android): app.seniorsafeapp.com
Talk it through. Book a free 20-min call with Ryan: rigginsstrategicsolutions.com/work-with-ryan
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Ryan Riggins is the founder of Riggins Strategic Solutions, a consumer protection company for families navigating senior transitions. He spent 8 years in construction project management and house flipping before switching sides. Two books on Amazon. Free resources at rigginsstrategicsolutions.com.
