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Discussion Paper
Reverse Mortgage Retrospective: How Recent Policy Changes Affected Government-Insured Reverse Mortgage Originations and Performance
This discussion paper analyzes the outcomes of recent policy reforms to the federally insured reverse mortgage program. Prior to these reforms, more than one out of 10 older adults with a Home Equity Conversion Mortgage (HECM) was reported to be in default on the loan for failure to pay property taxes or homeowner’s insurance payments. We study the effect of two major types of policy reforms: one that restricted the amount of funds available to a borrower, and the other that introduced underwriting requirements through a financial assessment for the first time in the program’s history. ...
Working Paper
How House Price Dynamics and Credit Constraints affect the Equity Extraction of Senior Homeowners
Households can borrow against equity through different channels, including home equity lines of credit (HELOCs), second liens, cash-out refinancing, and--for senior homeowners--reverse mortgages. We use data from the New York Federal Reserve/Equifax Consumer Credit Panel, the U.S. Department of Housing and Urban Development, and other sources to jointly estimate the decision to extract equity through these different channels. Specifically, we identify the influence of credit constraints, house price dynamics and their interactions on the proportion of seniors in a ZIP code extracting through ...
Working Paper
Reverse mortgage loans: a quantitative analysis
Supersedes Working Paper 13-27. Reverse mortgage loans (RMLs) allow older homeowners to borrow against housing wealth without moving. Despite growth in this market, only 2.1% of eligible homeowners had RMLs in 2011. In this paper, the authors analyze reverse mortgages in a calibrated life-cycle model of retirement. The average welfare gain from RMLs is $885 per homeowner. The authors? model implies that low-income, low-wealth, and poor-health households benefit the most, consistent with empirical evidence. Bequest motives, nursing-home-move risk, house price risk, and loan costs all ...