Reverse Mortgage Research Articles

REVERSE MORTGAGES: A BIBLIOMETRIC APPROACH

The present study performed a bibliometric analysis using 119 articles in the field of reverse mortgages from the Web of Sciences (WoS) database from 1978 to May 2022. To provide a comprehensive result, this study employs VOS Viewer software to construct the networks of co-citations of authors and sources of articles. The results show that the growth trend was recognized from the beginning year 2011 and it gained significant attention from researchers before and during the predicament period of the Global financial crisis 2007-8. It can be seen that the positive trend of interest in this field of study remained in the following years, particularly in the years 2020 and 2021. Using the co-citation analysis, the authors focus on fundamental issues in reverse mortgages such as knowledge (literacy) and demands of reverse mortgage products for elderly homeowners, risks associated with reverse mortgages such as default on their property taxes and insurance, potential growth of reverse mortgages as a financial tool, and fair valuations of reverse mortgages. The Journal of the American Real Estate and Urban Economics Association and Insurance Mathematics and Economics are found to be the most-cited journals in the field of study of reverse mortgages.

양도소득세 1세대 1주택 비과세의 개선 방안

[Purpose] We study problems of the system of capital tax for one-house per one-household and propose new policy.
 [Methodology] We study literature review.
 [Findings] The advantages expected by introducing carry forward of capital gain tax for one-house per one-household are as follows. First, there is a problem that arises because the standard of high-priced housing that is exempt from tax for one household does not adequately reflect changes in housing prices. can provide stability. Second, it is possible to reduce the risk of the real value of property being paid as tax by taxing the gains on transfers measured in a nominal amount reflecting long-term inflation, and to maintain the asset value of the house to continue to secure stable retirement funds using reverse mortgage loans in the future can do. Third, it is possible to reduce the debate about vertical fairness due to the difference in the absolute amount of the benefit due to the non-taxation of transfer gains.
 [Implications] If the carry forward of capital gain tax system is introduced to the non-taxation of one house per household, the confusion and difficulties that arise in the process of interpreting and applying the tax law in practice can be resolved due to the complicated and difficult regulations of the current non-taxation of one-house per one-household.

REVERSE MORTGAGE AND FINANCIAL SUSTAINABILITY

This paper analyzes the effects that contracting a reverse mortgage has on the finances of families of a country or group whose members who aged 65 or older are the sole owners of the 100% of the property, regardless of the receipt of a retirement pension. For this purpose, an economic-financial model based on the life cycle model is defined, which considers a double source of randomness: mortality and dependence of family members. Long-term effects are measured using probabilistic, temporal and monetary indicators. For each country, the model must be adapted according to the legal framework for retirement and long-term care benefits and for the actuarial mortality and long-term care tables. As an illustration, this model was applied on Spanish families using data from the Spanish Survey of Household Finances 2017. The results obtained indicate that a family in Spain that meets the conditions for contracting a reverse mortgage sees, on average, an increase in its initial income and a decrease in both its probability of having liquidity problems in the future and the value of this lack of liquidity. It is also concluded that family composition influences the magnitude of these positive effects.

Summaries of Articles

Summaries of Articles

A Study on the Degree of Sufficiency for Old-age Living according to the Level of Old-age Income of Housing Pension Users

This study provided policy implications by analyzing the effect of the income level of old-age people with reverse mortgages on enough level of living cost for old age. The analysis methods were cluster analysis, analysis of variance, binary logistic analysis, and multiple regression analysis. As a result of the analysis, compared to the reference group A (a group that has consistently well prepared for old age), group B (a group that has not consistently well prepared for old age) was insufficient in both expenditures (family support, cultural life travel expense) and income (national pension, personal and retirement pension, real estate rental income, savings/financial income). Second, group C (a group that was insufficient in the past, but is currently prepared for old age) did not lack in expenditure, but the income was insufficient in national pension, personal/retirement pension, and real estate rental income. Group D (A group that complied with in the past, but is not currently prepared for old age) was insufficient in both expenditure (family support, cultural life travel expense) and income (national pension, personal and retirement pension, real estate rental income). Implications are: First, job expansion for elderly households and minimum livelihood security policies are necessary. Second, it is urgent to receive a pension rather than a lump sum. Third, activation policies of local autonomy for elderly households outside the metropolitan area are required. Fourth, service improvement and tax benefits are required to expand the numbers of participants for reverse mortgages.

Reverse Mortgage Line of Credit Investment Retirement Strategy

Reverse Mortgage Line of Credit Investment Retirement Strategy

Housing debt and elderly housing tenure choices

AbstractWe examine the impact of financial leverage, measured by the loan‐to‐value (LTV) ratios , on elderly homeowners' mobility and housing tenure choices. Using a 1999–2019 sample from the Panel Study of Income Dynamics (PSID), we find that a higher LTV ratio substantially increases an elderly homeowner's likelihood of exiting homeownership. In particular, elderly homeowners with an LTV ratio greater than 80% are more than four times likely to exit homeownership than their debt‐free counterparts. By distinguishing recent leverage changes either from house price movement or from equity extraction/injection, we further find that the impact of financial leverage is path‐dependent. Holding the LTV ratio constant, elderly homeowners are less likely to depart from homeownership if they recently extracted equity from their homes. In addition, we find both financial constraint and long‐term indebtedness are important in predicting the likelihood of elderly homeowners exiting homeownership. We further extend our analysis by exploring the effect of the housing market cycle and find the relationship between financial leverage and elderly tenure choices varies across different stages of the cycle. Our findings have several important implications. They not only point to a linkage between housing and mortgage/rental markets but also help to explain the limited size of the U.S. reverse mortgage market.

Property Tax Compliance and Reverse Mortgages: Using Nudges to Improve the Market

Property Tax Compliance and Reverse Mortgages: Using Nudges to Improve the Market

Does home equity liquidation reduce older adults’ poverty rate? Evidence from South Korea

We investigate relative poverty rates among older adults from a unique dataset using an actuarial method applied to a public reverse mortgage in South Korea, which liquidates home equity and converts the assets to a readily available income. We find that it increases disposable income by approximately 20 per cent on average for older adults, and the improvement is more effective in the low-income quintiles. Due to the increased income, elderly poverty rate reduces significantly by 10 percentage points to about 31 per cent. Therefore, the elderly poverty rate following the OECD standard overestimates the elderly poverty rate and could misguide welfare policies.

Proposal for Calculating Regulatory Capital Requirements for Reverse Mortgages

Proposal for Calculating Regulatory Capital Requirements for Reverse Mortgages

An analytical study on the potential investors' perceptions towards reverse mortgage loan in Navi Mumbai Region of Maharashtra State

An analytical study on the potential investors' perceptions towards reverse mortgage loan in Navi Mumbai Region of Maharashtra State

Reverse mortgage and risk profile awareness: Proposals for securitization

AbstractReverse mortgages (RMs) are acquiring a growing centrality to meet the needs of a progressive aging population and to support the fragility of traditional pension systems. With an RM, an elderly individual gets a lump sum or a series of recurring payments whose amounts depend upon the expected liquidation value of his property and his age; he continues living in it until he dies, when the asset is sold and the proceeds are used to pay back the loan. The risk of these contracts, due to volatility of interest rates, house prices, and mortality rates, requires careful management strategies. This article analyzes the risk profile of the contract and suggests a securitization procedure where the lender averts the risks of the contract by engaging into an insurance contract through a special purpose vehicle that will issue ad‐hoc bonds, whose underlying is determined by the lender's gain/loss on the contract.

Hipoteca Inversa: impacto del riesgo de longevidad en el caso español

La perspectiva demográfica en España pone de manifiesto la necesidad de incorporar nuevas alternativas que permitan la sostenibilidad del estado de bienestar. Claramente, una de las principales soluciones será la hipoteca inversa, que permite hacer líquido el importante ahorro inmobiliario de los mayores y, así, procurar ingresos complementarios a las pensiones públicas. El presente artículo analiza, desde el punto de vista del riesgo de longevidad, el impacto entre la utilización de tablas de mortalidad diferenciadas o tablas conjuntas, poniéndose de manifiesto la importancia de la gestión global de la cartera por parte de la entidad financiera.

신탁방식 주택연금 전환의향 결정요인에 관한 연구

This study analyzed the factors of conversion intention of households using the proportional odds logit model based on the 2018 Reverse Mortgage Demand Survey to seek revitalization of the trust-type reverse mortgage system. As a result of the analysis, the main factors in the conversion to the trust-type were the presence or absence of a spouse, education level, child support, degree of recommendation, sufficient retirement life of the assets held, adult child opinion, and level of satisfaction. It was also confirmed that households using reverse mortgage have a high understanding and acceptability of the trust-type reverse mortgage system and the need to prepare additional retirement income. In conclusion, the trust-type reverse mortgage is expected to be a very useful means not only for new subscribers but also for existing housing pension subscribers. Therefore, it is important to improve related infrastructure so that existing housing pension subscribers can switch to the trust method. At the same time, efforts to improve the system and develop linked products of trust-type reverse mortgage need to be continued.

On the feasibility of reverse mortgages in Colombia

PurposeThe Colombian Government proposed a reverse mortgage mechanism to complement retirement income in Colombia. This paper aims to study its feasibility by valuing its premia.Design/methodology/approachUnder a reverse mortgage scheme, banks issue put options on an owner’s home. To value the option, the authors apply a risk-neutral canonical approach modeling its three sources of risk: home future value, interest rate levels and homeowner life expectancy.FindingsIn all, premia values do not seem too high. However, if future interest rates are above the simulations or home appreciation is below its historical behavior, the premia could sharply increase, jeopardizing the system viability. Limiting the loan-to-home-value ratio or fixed-term annuities are feasible alternatives to keep premium increases at bay. Complementary mechanisms may also help.Research limitations/implicationsThe home price and interest rate path estimation do not include inflation dynamics; in recent years inflation level was very low. However, the future does not offer any warrants. Future research also should cap the maximum loss the bank can endure. The pandemic may cause demographic changes affecting the viability of the reverse mortgage (R.M.) program in Colombia.Practical implicationsBased on the analysis, this work suggests possible government policies to help creditors and to maintain bank risks at a reasonable level.Social implicationsAn adequate reverse mortgage program may help the policymakers in Colombia to face the adverse environment for Colombia’s housing market and the pressure of its pension system. A good R.M. program generates incentives to purchase homes, given the possibility of receiving an additional rent after retirement.Originality/valueThe paper develops an econometrical improvement over previous work. The authors present a time-series analysis that includes stationarity and co-integration information to model the data-generation process of house prices and interest rates in a multivariate fashion. The authors also improve the valuation formula. Moreover, the paper presents a novel application to Colombia. The authors obtain our demographic data from the United Nations Population Division applying the Lee-Carter method to model mortality rates, which provides ample possibilities to extend reverse mortgage assessment to additional. Finally, this is the first scholarly effort to evaluate the R.M. for the Colombian case.

Reverse mortgages and aircraft parts: The arcane referendum and the limits of citizen competence

Whether from a sincere belief in the ability of the body politic to arrive at optimal decisions, or in an instrumental attempt to generate legitimacy for policy choices, a large number of jurisdictions use the referendum to settle political questions. This practice relies on assumptions about voter interest and competence that merit empirical testing. We conduct a series of survey experiments that leverage variation in wording from a set of arcane ballot provisions from elections in Texas. We find that (1) voters are largely confused about the meaning of such ballot provisions; (2) efforts to improve the wording of such provisions and educate voters has minimal impact on their comprehension; (3) voters are easily persuaded to change their vote when given the chance; and (4) voters rely heavily on default answers (especially “yes”) in casting their votes. On the whole, the evidence suggests that narrow referendum questions that lack clear ideological or informational cues overwhelm the limits of citizen competence, and are thus likely to result in unstable and unreliable decisions.

Valuation of Reverse Mortgages with Surrender: A Utility Approach

Valuation of Reverse Mortgages with Surrender: A Utility Approach

주택가격 급등 시 주택연금 가입자의 최적 대응 전략

This study analyzed coping strategies that subscribers can take, assuming the situation in which housing prices surge after their joining the reverse mortgage loan program. In the analysis of the net present value, it was found that the termination (and rejoining)strategy after 3 years was advantageous when the rate of increase in house prices was more than 20%. When the rate of increase in housing prices is more than 20%, for both termination strategies the homepension amount increases significantly compared to the maintaining strategy while the expected inheritance amount decreases significantly. In the analysis of expected utility, it was found that if housing price increases more than 20%, then the termination strategiesbecame more advantageous than the maintaining strategy. If preferential subscription is possible due to low house price such as 100 million won or the subscription starting age is low, then the termination strategy became more advantageous.Also, the shorter the subscription period and the lower the inheritance strength, the more advantageous the termination strategy. Lastly, when the rate of increase in housing prices in the future was very low (-1～1%) or very high (3～4%), the termination strategy was more advantageous. In the end, it was found that the optimal strategy to be selected depends on the subscriber’s preference such as the strength of inheritance motive, and various conditions such as housing price, subscription age, and subscription period.

Valuation of Reverse Mortgages with Default Risk Models

Valuation of Reverse Mortgages with Default Risk Models

Novel utility-based life cycle models to optimise income in retirement

The global shift towards defined-contribution pension schemes has been accompanied by asymmetric risks and new responsibilities for households to plan and fund effectively their own retirement over the years. In this study, expressing and combining preferences for consumption, investment, bequest, public pension entitlement and the choice of reverse mortgage products, we develop several utility-based life cycle models to facilitate the complex decision-making process that retired households are required to follow to optimise their retirement income. This optimal policy is given in the form of either an analytical or a numerical solution using stochastic dynamic programming. The timing of this paper coincides with the launch of a reverse mortgage style loan, offered by the Australian federal government and allowing retired households to receive an income stream by taking out a loan against the equity in their home. Calibration is performed using real Australian household data.