IDEAS home Printed from https://ideas.repec.org/p/fip/fedgfe/2009-42.html
   My bibliography  Save this paper

Reversing the trend: the recent expansion of the reverse mortgage market

Author

Listed:
  • Hui Shan

Abstract

Reverse mortgages allow elderly homeowners to tap into their housing wealth without having to sell or move out of their homes. However, very few eligible homeowners have used reverse mortgages to achieve consumption smoothing until recently when the reverse mortgage market in the United States witnessed substantial growth. This paper examines 1989-2007 loan-level reverse mortgage data and presents a number of findings. First, I show that recent reverse mortgage borrowers are significantly different from earlier borrowers in many respects. Second, I find that borrowers who take the line-of-credit payment plan, single male borrowers, and borrowers with higher house values exit their homes sooner than other reverse mortgage borrowers. Third, I combine the reverse mortgage data with county-level house price data to show that elderly homeowners are more likely to purchase reverse mortgages when the local housing market is at its peak. This finding suggests that the 2000-05 housing market boom may be partially responsible for the rapid growth of reverse mortgage markets. Lastly, I show that the Federal Housing Administration (FHA) mortgage limits, which cap the amount of housing wealth that an eligible homeowner can borrow against, have no effect on the demand for reverse mortgages. The findings have important implications to both policy-making and the economics of housing and aging.

Suggested Citation

  • Hui Shan, 2009. "Reversing the trend: the recent expansion of the reverse mortgage market," Finance and Economics Discussion Series 2009-42, Board of Governors of the Federal Reserve System (U.S.).
  • Handle: RePEc:fip:fedgfe:2009-42
    as

    Download full text from publisher

    File URL: http://www.federalreserve.gov/pubs/feds/2009/200942/200942abs.html
    Download Restriction: no

    File URL: http://www.federalreserve.gov/pubs/feds/2009/200942/200942pap.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. B. Douglas Bernheim, 2000. "How Much Should Americans Be Saving for Retirement?," American Economic Review, American Economic Association, vol. 90(2), pages 288-292, May.
    2. Steven F. Venti & David A. Wise, 2004. "Aging and Housing Equity: Another Look," NBER Chapters,in: Perspectives on the Economics of Aging, pages 127-180 National Bureau of Economic Research, Inc.
    3. Todd Sinai & Nicholas S. Souleles, 2007. "Net Worth and Housing Equity in Retirement," NBER Working Papers 13693, National Bureau of Economic Research, Inc.
    4. Steven F. Venti & David A. Wise, 1989. "Aging, Moving, and Housing Wealth," NBER Chapters,in: The Economics of Aging, pages 9-54 National Bureau of Economic Research, Inc.
    5. Venti, Steven F. & Wise, David A., 1991. "Aging and the income value of housing wealth," Journal of Public Economics, Elsevier, pages 371-397.
    6. Sally R. Merrill & Meryl Finkel & Nandinee K. Kutty, 1994. "Potential Beneficiaries from Reverse Mortgage Products for Elderly Homeowners: An Analysis of American Housing Survey Data," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 22(2), pages 257-299.
    7. repec:crr:issbrf:ib2007-7-7 is not listed on IDEAS
    8. Bradford Case & Ann B. Schnare, 1994. "Preliminary Evaluation of the HECM Reverse Mortgage Program," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 22(2), pages 301-346.
    9. Christopher J. Mayer & Katerina V. Simons, 1994. "Reverse Mortgages and the Liquidity of Housing Wealth," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 22(2), pages 235-255.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Moulton, Stephanie & Haurin, Donald R. & Shi, Wei, 2015. "An analysis of default risk in the Home Equity Conversion Mortgage (HECM) program," Journal of Urban Economics, Elsevier, vol. 90(C), pages 17-34.
    2. 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.
    3. Katja Hanewald & Thomas Post & Michael Sherris, 2016. "Portfolio Choice in Retirement—What is The Optimal Home Equity Release Product?," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 83(2), pages 421-446, June.
    4. 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.
    5. repec:eee:hapoch:v1_237 is not listed on IDEAS
    6. Stephanie Moulton & Donald Haurin & Samuel Dodini & Maximilian D. Schmeiser, 2016. "How Home Equity Extraction and Reverse Mortgages Affect the Credit Outcomes of Senior Households," Working Papers wp351, University of Michigan, Michigan Retirement Research Center.
    7. Carmen Hoyo & David Tuesta, 2013. "Financiando la jubilacion con activos inmobiliarios: un analisis de caso para Mexico," Working Papers 1334, BBVA Bank, Economic Research Department.
    8. Chan, Sewin & Haughwout, Andrew & Tracy, Joseph, 2015. "How Mortgage Finance Affects the Urban Landscape," Handbook of Regional and Urban Economics, Elsevier.
    9. Dillingh, Rik, 2016. "Empirical essays on behavioral economics and lifecycle decisions," Other publications TiSEM 0e2143e3-bd86-4302-90eb-e, Tilburg University, School of Economics and Management.
    10. Davidoff, Thomas & Gerhard, Patrick & Post, Thomas, 2017. "Reverse mortgages: What homeowners (don’t) know and how it matters," Journal of Economic Behavior & Organization, Elsevier, vol. 133(C), pages 151-171.
    11. Irina A. Telyukova & Makoto Nakajima, 2011. "Reverse Mortgage Loans: A Quantitative Analysis," 2011 Meeting Papers 387, Society for Economic Dynamics.
    12. Swarn Chatterjee, 2016. "Reverse Mortgage Participation in the United States: Evidence from a National Study," International Journal of Financial Studies, MDPI, Open Access Journal, vol. 4(1), pages 1-10, March.
    13. repec:gam:jijfss:v:4:y:2016:i:1:p:5:d:65957 is not listed on IDEAS
    14. Timothy Jones & Dean Gatzlaff & G. Stacy Sirmans, 2016. "Housing Market Dynamics: Disequilibrium, Mortgage Default, and Reverse Mortgages," The Journal of Real Estate Finance and Economics, Springer, vol. 53(3), pages 269-281, October.
    15. Donald Haurin & Chao Ma & Stephanie Moulton & Maximilian Schmeiser & Jason Seligman & Wei Shi, 2016. "Spatial Variation in Reverse Mortgages Usage: House Price Dynamics and Consumer Selection," The Journal of Real Estate Finance and Economics, Springer, vol. 53(3), pages 392-417, October.
    16. Fang, H., 2016. "Insurance Markets for the Elderly," Handbook of the Economics of Population Aging, Elsevier.
    17. Carmen Hoyo & David Tuesta, 2013. "Financing retirement with real estate assets: an analysis of Mexico," Working Papers 1335, BBVA Bank, Economic Research Department.

    More about this item

    Keywords

    Mortgage loans; Reverse ; Older people;

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:fedgfe:2009-42. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Franz Osorio). General contact details of provider: http://edirc.repec.org/data/frbgvus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.