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The Scope for Poverty Alleviation among Elderly Home-owners in the United States through Reverse Mortgages

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  • Nandinee K. Kutty

    (Department of Political Analysis and Management at Cornell University, Martha Van Rensselaer Hall, Ithaca, NY 14853-4401, USA, nkk2@cornell.edu.)

Abstract

This paper investigates the scope for alleviating poverty among elderly home-owners in the US by means of reverse mortgages. A reverse mortgage is a loan secured against the home equity owned by the borrower. This loan does not require monthly repayment and the elderly borrower is allowed to use the home as a principal residence for as long as she wishes. We compute monthly payments that can be obtained by elderly home-owners under a reverse mortgage by simulating the tenure plan of the Home Equity Conversion Mortgage (HECM) reverse mortgage product which is sponsored by the US Department of Housing and Urban Development. This study utilises data from the National File of the American Housing Survey of 1991. We estimate that 621 820 elderly home-owners in poverty could be raised above the poverty line if they obtained a reverse mortgage under the HECM tenure plan. These households constitute 29 per cent of all poor elderly home-owners. There appears to be considerable scope for alleviating poverty among elderly home-owners through reverse mortgages. We estimate that the poverty rate of elderly households in occupied units (both renters and owners) can be reduced by three percentage points (from 17 per cent to 14 per cent) by means of reverse mortgages. It is estimated that if home-owners in poverty had obtained reverse mortgages in 1991, the poverty rate for all elderly persons that year, 12.4 per cent, would have reduced by 2.4 percentage points to 10 per cent.

Suggested Citation

  • Nandinee K. Kutty, 1998. "The Scope for Poverty Alleviation among Elderly Home-owners in the United States through Reverse Mortgages," Urban Studies, Urban Studies Journal Limited, vol. 35(1), pages 113-129, January.
    • Handle: RePEc:sae:urbstu:v:35:y:1998:i:1:p:113-129
    DOI: 10.1080/0042098985104
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    References listed on IDEAS

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    3. Yunju Nam & Yungsoo Lee & Shawn McMahon & Michael Sherraden, 2016. "New Measures of Economic Security and Development: Savings Goals for Short- and Long-Term Economic Needs," Journal of Consumer Affairs, Wiley Blackwell, vol. 50(3), pages 611-637, November.
    4. Gary V. Engelhardt & Nadia Greenhalgh-Stanley, 2008. "Public Long-Term Care Insurance and the Housing and Living Arrangements of the Elderly: Evidence from Medicare Home Health Benefits," Working Papers, Center for Retirement Research at Boston College wp2008-15, Center for Retirement Research, revised Dec 2008.
    5. Kilgarriff, Paul & Charlton, Martin & Foley, Ronan & O'Donoghue, Cathal, 2019. "The impact of housing consumption value on the spatial distribution of welfare," Journal of Housing Economics, Elsevier, vol. 43(C), pages 118-130.
    6. Ruiz, José Luis & Tapia, Pablo & Donoso, José, 2019. "The social and economic effects of introducing reverse mortgages in Chile," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), December.
    7. Ming Pu & Gang-Zhi Fan & Yongheng Deng, 2014. "Breakeven Determination of Loan Limits for Reverse Mortgages under Information Asymmetry," The Journal of Real Estate Finance and Economics, Springer, vol. 48(3), pages 492-521, April.
    8. Mohammed Ishaq Mohammed & Noralfishah Sulaiman & Dahiru Adamu, 2018. "Dimensionality and Reliability of the Determinants of Reverse Mortgage Use Intention," Traektoriâ Nauki = Path of Science, Altezoro, s.r.o. & Dialog, vol. 4(2), pages 1013-1023, February.
    9. Nandinee Kutty, 1999. "Demand for home modifications: a household production function approach," Applied Economics, Taylor & Francis Journals, vol. 31(10), pages 1273-1281.
    10. 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.
    11. Duncan Watson & Robert Webb, 2009. "Do Europeans View their Homes as Castles? Homeownership and Poverty Perception throughout Europe," Urban Studies, Urban Studies Journal Limited, vol. 46(9), pages 1787-1805, August.
    12. Ngee-Choon Chia & Albert K C Tsui, 2005. "Reverse Mortgages as Retirement Financing Instrument: An Option for “Asset-rich and Cash-poor” Singaporeans," SCAPE Policy Research Working Paper Series 0503, National University of Singapore, Department of Economics, SCAPE.
    13. Murray, Tim, 2019. "Defined benefit pensions and homeownership in the post-Great Recession era," MPRA Paper 92601, University Library of Munich, Germany.
    14. Wei Han & Ping Wang & Hao Xu & June-Sung Choi, 2017. "Evaluation of the Reverse Mortgage Option in Hong Kong," Asian Economic Journal, East Asian Economic Association, vol. 31(2), pages 187-210, June.
    15. Joan Costa i Font & Joan Gil & Oscar Mascarilla Miró, "undated". "Preferencias de la población ante la financiación de la dependéncia: La hipoteca inversa en Espana," Studies on the Spanish Economy 230, FEDEA.

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