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Adverse selection in reverse mortgages: Evidence from South Korea

Author

Listed:
  • Kang, DongIk
  • Park, Jongsang

Abstract

This study tests for adverse selection in a government sponsored reverse mortgage market where pricing depends only on age, aggregate interest rates, and home value. Using district-level data from South Korea, we apply the “positive-correlation test,” linking coverage to unpriced risk factors such as longevity and housing-price expectations. We find that areas with higher life expectancy show greater participation and coverage. In contrast, slower past housing-price growth predicts greater coverage, particularly for high-value districts. The significant relationship between the unpriced risk factors and coverage reveal the presence of adverse selection in the market for reverse mortgages.

Suggested Citation

  • Kang, DongIk & Park, Jongsang, 2026. "Adverse selection in reverse mortgages: Evidence from South Korea," Economics Letters, Elsevier, vol. 259(C).
    • Handle: RePEc:eee:ecolet:v:259:y:2026:i:c:s0165176525006135
    DOI: 10.1016/j.econlet.2025.112776
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    References listed on IDEAS

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    More about this item

    Keywords

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    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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