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Potential Beneficiaries from Reverse Mortgage Products for Elderly Homeowners: An Analysis of American Housing Survey Data

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  • Sally R. Merrill
  • Meryl Finkel
  • Nandinee K. Kutty

Abstract

A variety of reverse mortgage loan programs have been available to elderly households for over a decade. The number of unrestricted reverse mortgage loans issued by the private sector has been quite small. About 12,000 loans have been issued through mid-1992. Some researchers take this to mean that the size of the potential market for reverse mortgages is also quite small. Other researchers claim that current low levels of activity reflect supply and demand problems, but that the potential market is in fact quite large.This paper uses American Housing Survey (AHS) data to estimate the potential size of the market for unrestricted reverse mortgages. The 1989 national AHS shows that there are over twelve million elderly homeowners (age 62 and over) who own their homes free and clear. Depending on their income, age and the level of home equity, the group of households most likely to benefit from reverse annuity mortgages is considerably smaller. As one approach to defining a lower bound of the estimate of potential beneficiaries from reverse mortgages, we count the number of homeowners in a prime group consisting of the older elderly, aged 70 or above, with an annual income of $30,000 or less, with home equity between $100,000 and $200,000, who have lived in their homes for over ten years. We estimate that there are about 800,000 elderly households in this prime group. For such households, reverse mortgage payments could represent a substantial percentage increase in income; other definitions of target groups can also be explored using the tables provided.The paper uses the 1985 through 1988 AHS Standard Metropolitan Statistical Area (SMSA) surveys to identify areas that have a large number of elderly homeowners in the prime target group, and in which these homeowners represent a large fraction of the elderly homeowner population. These locations are likely targets for introduction of reverse mortgage products because any campaign can be targeted towards a high concentration of likely eligible beneficiaries. Copyright American Real Estate and Urban Economics Association.

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Bibliographic Info

Article provided by American Real Estate and Urban Economics Association in its journal Real Estate Economics.

Volume (Year): 22 (1994)
Issue (Month): 2 ()
Pages: 257-299

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Handle: RePEc:bla:reesec:v:22:y:1994:i:2:p:257-299

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Cited by:
  1. Ermisch, John F. & Jenkins, Stephen P., 1999. "Retirement and housing adjustment in later life: evidence from the British Household Panel Survey," Labour Economics, Elsevier, vol. 6(2), pages 311-333, June.
  2. Wei Sun & Robert K. Triest & Anthony Webb, 2007. "Optimal retirement asset decumulation strategies: the impact of housing wealth," Public Policy Discussion Paper 07-2, Federal Reserve Bank of Boston.
  3. Hui Shan, 2011. "Reversing the Trend: The Recent Expansion of the Reverse Mortgage Market," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 39(4), pages 743-768, December.
  4. Disney, Richard & Whitehouse, Edward, 2001. "Cross-country comparisons of pensioners’ incomes," MPRA Paper 16345, University Library of Munich, Germany.
  5. Sinai, Todd & Souleles, Nicholas S., 2007. "Net worth and housing equity in retirement," CFS Working Paper Series 2007/34, Center for Financial Studies (CFS).
  6. Makoto Nakajima & Irina A. Telyukova, 2013. "Reverse mortgage loans: a quantitative analysis," Working Papers 13-27, Federal Reserve Bank of Philadelphia.
  7. Ngee-Choon Chia & Albert K C Tsui, 2005. "Reverse Mortgages as Retirement Financing Instrument : An Option for “Asset-rich and Cash-poor†Singaporeans," Finance Working Papers 22566, East Asian Bureau of Economic Research.
  8. Olivia S. Mitchell & John Piggott, 2004. "Unlocking Housing Equity in Japan," NBER Working Papers 10340, National Bureau of Economic Research, Inc.
  9. Maier, Andreas, 2010. "Immobilienverzehrprodukte: Potenzielle Profiteure und Nachfragehemmnisse," Thuenen-Series of Applied Economic Theory 115, University of Rostock, Institute of Economics.
  10. Buckley, Robert & Cartwright, Kim & Struyk, Raymond & Szymanoski, Edward, 2003. "Integrating housing wealth into the social safety net for the Moscow elderly: an empirical essay," Journal of Housing Economics, Elsevier, vol. 12(3), pages 202-223, September.
  11. Makoto Nakajima, 2012. "Everything you always wanted to know about reverse mortgages but were afraid to ask," Business Review, Federal Reserve Bank of Philadelphia, issue Q1, pages 19-31.

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