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"Home equity conversion."
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Is Housing Wealth an 'ATM'? The Relationship Between Household Wealth, Home Equity Withdrawal, and Saving Rates
This paper examines the role increasing personal wealth and home equity withdrawal (HEW) have had in the decline in the personal saving rate in the United States. It does so by comparing the U.S. experience with those of Australia, Canada, and the United Kingdom. Mortgage market liberalization and innovation should reduce household cash flow and collateral constraints while making housing wealth more liquid as HEW becomes easier over time. Regression analysis indicates the expected negative relationship between U.S. saving and net worth, with a somewhat smaller coefficient than in previous studies. HEW is estimated to have a temporary negative impact on saving of the order of 20 cents on the dollar.
eBook
Willingness analysis of middle-aged and older people’s participation in reverse mortgage schemes
Enabling older adults to age at home is an urgent issue. This study focuses on the attitudes of middle-aged and older people (MAOP) in the capital cities of Taiwan, which are characterised by expensive housing prices and living costs, to examine their preferences for reverse mortgage (RM) schemes. The stated preference method and conditional multinomial logit model are utilised for analysis. The study simulates the total payment duration (TPD) and monthly payment amounts (MPA) to determine the market share of MAOPs’ choices regarding terms. The results indicate that MAOPs tend to opt for RM schemes when they have children, partly enhancing the preference toward the long-term alternative (AL). Increasing the MPA has a positive effect on the market share of the AL scheme, but the amount must be increased to 90% to replace the market share of non-participation schemes significantly. The experimental design of this study could serve as a reference for future RM scheme designs. The findings suggest that there should be more alternative funding sources in an ageing society, particularly through revitalising housing assets, to promote ageing in place.
Journal Article
Reverse Mortgages and Pension Sustainability: An Agent-Based and Actuarial Approach
Population aging poses significant challenges to the sustainability of pension systems. This study presents an integrated methodological approach that uniquely combines actuarial life-cycle modeling with agent-based simulation to assess the potential of Reverse Mortgage Loans (RMLs) as a dual lever for enhancing retiree welfare and supporting pension system resilience under demographic and financial uncertainty. We explore Reverse Mortgage Loans (RMLs) as a potential financial instrument to support retirees while alleviating pressure on public pensions. Unlike prior research that treats individual decisions or policy outcomes in isolation, our hybrid model explicitly captures feedback loops between household-level behavior and system-wide financial stability. To test our hypothesis that RMLs can improve individual consumption outcomes and bolster systemic solvency, we develop a hybrid model combining actuarial techniques and agent-based simulations, incorporating stochastic housing prices, longevity risk, regulatory capital requirements, and demographic shifts. This dual-framework enables a structured investigation of how micro-level financial decisions propagate through market dynamics, influencing solvency, pricing, and adoption trends. Our central hypothesis is that reverse mortgages, when actuarially calibrated and macroprudentially regulated, enhance individual financial well-being while preserving long-run solvency at the system level. Simulation results indicate that RMLs can improve consumption smoothing, raise expected utility for retirees, and contribute to long-term fiscal sustainability. Moreover, we introduce a dynamic regulatory mechanism that adjusts capital buffers based on evolving market and demographic conditions, enhancing system resilience. Our simulation design supports multi-scenario testing of financial robustness and policy outcomes, providing a transparent tool for stress-testing RML adoption at scale. These findings suggest that, when well-regulated, RMLs can serve as a viable supplement to traditional retirement financing. Rather than offering prescriptive guidance, this framework provides insights to policymakers, financial institutions, and regulators seeking to integrate RMLs into broader pension strategies.
Journal Article
Reverse Mortgage Motivations and Outcomes
The primary goal of this article is to inform assumptions used by researchers and policymakers to model the demand for and takeup of reverse mortgages. Our article describes the characteristics of more than 1,700 households that sought counseling for a reverse mortgage between 2006 and 2011; of those households, 74 percent obtained a reverse mortgage. Using data collected at the time of counseling and also followup survey data collected in 2014, we summarize self-reported motivations for seeking a reverse mortgage, including reasons for not getting a reverse mortgage, if applicable. We also compare the characteristics of households that seek reverse mortgages with the general population of senior homeowners using the 2008, 2010, and 2014 waves of the Health and Retirement Study. A final goal of the article is to compare selected outcomes of reverse mortgage borrowers with outcomes in the general population of senior homeowners.
Journal Article
Housing, Health, and Annuities
Annuities, long-term care insurance (LTCI), and reverse mortgages appear to offer important consumption smoothing benefits to the elderly, yet private markets for these products are small. A prominent idea is to combine LTCI and annuities to alleviate both supply (selection) and demand (liquidity) problems in these markets. This article shows that if consumers typically liquidate home equity only in the event of illness or very old age, then LTCI and annuities become less attractive and may become substitutes rather than complements. The reason is that the marginal utility of wealth drops when an otherwise illiquid home is sold, an event correlated with the payouts of both annuities and LTCI. Simulations confirm that demand for LTCI and annuities is highly sensitive to the liquidity and magnitude of home equity.
Journal Article
Evaluation of the reverse mortgage option in Korea: A long straddle perspective
This study explored the option value embedded in a reverse mortgage in Korea through an empirical analysis, using the Black-Scholes option-pricing model. The value of a reverse mortgage is affected by the variation in house prices. However, older homeowners using reverse mortgages are able to choose this option due to the unique characteristics of reverse mortgages, such as non-recourse clauses or being able to redeem the loan. This paper found the following results. First, the call option value is 5.8% of the house price at the age of 60, under the assumption of a KRW three hundred million house value, while the put option value is only 2.0%. Contrary to what it is at sixty years of age, only the call option value will remain when the homeowner reaches the age of 80. Second, this article analyzed the sensitivity of the key variables of real-option analytical models, such as the change of the exercise price, the change of the risk-free rate, volatility, and maturity, on the option value of a reverse mortgage. The sensitivity results of the key variables supported economic rationales for the option pricing model.
Journal Article
Financial Sustainability and the Home Equity Conversion Mortgage
The Home Equity Conversion Mortgage (HECM) has undergone significant changes in its 25-year history since its modest start as a 2,500-loan pilot in 1987 to its nearly one million endorsements at the end of 2015. The Great Recession more recently underscored the need for measures to secure the financial sustainability of these reverse mortgages. Such measures have sought to mitigate risk and improve the financial health of the HECM program while promoting affordable financing through the HECM mortgage-backed securities, or HMBS, program. Improved fiscal soundness for HECM ensures the program is viable and continues to provide affordable financing in the conversion of home equity for senior homeowners. This article examines changes made toward increasing the financial sustainability of HECM through fiscal soundness and the facilitation of affordable financing. These changes are especially relevant as American households continue to age and seek the option to affordably access their housing wealth while remaining in their home.
Journal Article
The HECM Program in a Snapshot
The first Home Equity Conversion Mortgage (HECM) loan was originated in 1989. As of early 2017, more than 1 million borrowers had taken advantage of the program, which enables participants to extract home equity while aging in place. The aging of the U.S. population and strong preference to age in place suggest potential for growth of the HECM program in the coming years. Any growth must be managed and strong consumer protections enforced, however, to ensure the viability of the HECM program. The purpose of this article is, first, to describe the reverse mortgage market using survey and administrative data and, second, to discuss the HECM program in light of certain demographic, economic, and housing market trends.
Journal Article