Spatial Variation in Reverse Mortgages Usage: House Price Dynamics and Consumer Selection

Using a unique data set of more than 14,000 senior homeowners in the United States, this study compares self‐assessed home values to arm's length contemporaneous appraisals. In a sample of seniors who received counseling for a reverse mortgage, the absolute value of the assessment error averages 18.9% of appraised value and it is biased upwards by 13.4%. When adjusted to reflect the general population of seniors, the size and bias of the average error fall to 16.1% and 4.2%. Both the bias and the size of the error tend to be lower for households with higher income and credit scores but it is greater for black households. In our sample period of 2009–2011, house prices were falling. The greater the rate of price reduction, the greater is the upward bias and size of the assessment error. When seniors who applied for a reverse mortgage learn that they overvalued their home, their probability of closing the loan falls.

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“…Details of the process of obtaining a reverse mortgage are in Haurin et al . () and Moulton, Haurin and Shi ().…”

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confidence: 98%

“…Thus, the amount of equity must be sufficient to cover these debts and all origination and mortgage insurance costs; otherwise, the household would have to bring additional cash to the closing. Details of the process of obtaining a reverse mortgage are inHaurin et al (2016) andMoulton, Haurin and Shi (2015).…”

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The Accuracy of Senior Households’ Estimates of Home Values: Application to the Reverse Mortgage Decision

Haurin

Moulton

Shi

2017

Real Estate Economics

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“…The legal framework varies across countries: Australia, United States, Italy or Spain have regulated reverse mortgages, but other countries show voluntary codes—New Zealand—or just offer protection in the pre-contractual stage—Ireland or United Kingdom (ASIC 2018 ; Simón-Moreno 2019 ). Authors such as Haurin et al ( 2016 ), Michelangeli ( 2010 ), Redfoot et al ( 2007 ) or Shan ( 2011 ) have analysed the characteristics of the borrowers of reverse mortgages and in what conditions this operation could be beneficial for them. For reverse mortgage loans, Nakajima and Telyukova ( 2017 ) showed that inheritance motives, uncertainty about health and expenses, and loan costs account for the low demand, and Costa-Font et al ( 2010 ) found that current income, educational level, gender, and age are the main determinants of taking out a reverse mortgage loan.…”

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confidence: 99%

The reverse mortgage: a tool for funding long-term care and increasing public housing supply in Spain

Martínez-Lacoba

García

Sotos

2020

J Hous and the Built Environ

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Population ageing is one of the most significant challenges facing the world in the twenty-first century. Furthermore, people aged over 65 typically have a level of income below the national average, but the homeownership rate among those in this age group tends to be high. Equity release schemes, specifically reverse mortgages, can help cover increased care costs and ensure a reasonable level of income, thus guaranteeing the well-being of older adults. However, this product has not been greatly developed by private entities. If the State were to implement this financial operation through public administrations, it could obtain homes that might then be included in public housing stocks. Thus, our paper aims to contribute to the literature on government-based reverse mortgage systems. Under our assumptions, the results showed that if 313,833 homes were reverse-mortgaged, the investment by the public administration would be around 0.73% GDP, with this being a feasible proposal. This work helps to create alternative methods to finance problems related with the ageing of societies from a public perspective.

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“…The proportion of older adults with HECMs grew substantially during the Great Recession, with the number of HECMs originated per year increasing from 6,640 in 2000 to a peak of 114,692 in 2009 (Shan, 2011 Haurin et al ., 2016). While part of this increase is likely due to house price increases, the origination of new HECM loans remained relatively high even as house prices fell through 2011—a period during which other types of mortgages and forms of consumer credit were contracting (Moulton et al ., 2015a).…”

Section: Introductionmentioning

confidence: 99%

“…5 5 HECMs structured as a line of credit may provide homeowners a vehicle to hedge against changes in future interest rates, house prices, or credit risk (Haurin et al ., 2016). …”

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How federally insured reverse mortgages affect the credit outcomes of older adults

Moulton

Haurin

Dodini

et al. 2020

Journal of Consumer Affairs

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This study examines how the extraction of home equity through the federally insured Home Equity Conversion Mortgage (HECM) affects the credit outcomes of older adults. We use data from the Federal Reserve Bank of New York/Equifax Consumer Credit Panel, supplemented with a unique credit panel data set of reverse mortgage borrowers. Using matched sample difference-indifferences with individual fixed effects, we estimate credit outcomes for older adults who borrowed through a HECM between 2008 and 2011, relative to older homeowners not borrowing from home equity. Our results indicate that the HECM is associated with a short-term reduction in revolving credit card debt, as well as a reduction in the probability of bankruptcy. We find some evidence of heterogeneous treatment effects, where older adults with higher levels of consumer debt prior to originating a HECM experience larger subsequent declines in debt, increases in credit score, and steeper reductions in bankruptcy rates.

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Spatial Variation in Reverse Mortgages Usage: House Price Dynamics and Consumer Selection

Cited by 16 publications

References 22 publications

The Accuracy of Senior Households’ Estimates of Home Values: Application to the Reverse Mortgage Decision

The Accuracy of Senior Households’ Estimates of Home Values: Application to the Reverse Mortgage Decision

The reverse mortgage: a tool for funding long-term care and increasing public housing supply in Spain

How federally insured reverse mortgages affect the credit outcomes of older adults

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