The Role of Appreciation and Borrower Characteristics in Reverse Mortgage Terminations

Thomas Davidoff () and Gerd M. Welke ()
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Gerd M. Welke: California State Polytechnic University

Journal of Real Estate Research, 2017, vol. 39, issue 1, 99_126

Abstract: The Federal Housing Administration ("FHA") insures Home Equity Conversion Mortgage ("HECM") lenders against shortfalls between loan balances and collateral value. Because borrowers may defer repayment until they move out of their homes or die, FHA loses money on HECM loans when borrowers remain in their homes for a long time or prices fall. We show that there is an economically large and positive correlation between reverse mortgage terminations and home price appreciation. Consistent with intuition derived from a simple life-cycle model, we find the relationship between appreciation and termination weakens with borrower age, and appears to weaken with borrower wealth.

JEL-codes: L85 (search for similar items in EconPapers)
Date: 2017
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