Valuation of Reverse Mortgages with Surrender: A Utility Approach

Yung-Tsung Lee () and Tianxiang Shi ()
Additional contact information
Yung-Tsung Lee: National Chiayi University
Tianxiang Shi: Temple University

The Journal of Real Estate Finance and Economics, 2022, vol. 65, issue 4, No 3, 593-621

Abstract: Abstract Reverse mortgages are a financial tool for lower-income seniors to release home equity and increase their retirement income. In the United States, reverse mortgages are generally insured by the Federal Housing Administration (FHA) through the Home Equity Conversion Mortgage (HECM) program, which protects borrowers from owing more than the value of their house. Previous research on reverse mortgage valuation typically focuses on mortgage termination risks related to mortality and morbidity, but few studies explore the impact of early surrender on the entire risk profile of reverse mortgages. To fill this gap, we propose a utility approach to investigate borrowers’ surrender behavior. We explore how a surrender-and-refinance strategy affects the cash flows of the HECM insurance program and also assess its tail risk.

Keywords: Reverse mortgage; No-negative-equity guarantee; Surrender; Refinance; CRRA utility (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://link.springer.com/10.1007/s11146-021-09869-7 Abstract (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:jrefec:v:65:y:2022:i:4:d:10.1007_s11146-021-09869-7

Ordering information: This journal article can be ordered from
http://www.springer. ... ce/journal/11146/PS2

DOI: 10.1007/s11146-021-09869-7

Access Statistics for this article

The Journal of Real Estate Finance and Economics is currently edited by Steven R. Grenadier, James B. Kau and C.F. Sirmans

More articles in The Journal of Real Estate Finance and Economics from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().