Moral Hazard in Home Equity Conversion

Robert Shiller and Allan N. Weiss

No 6552, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Home equity conversion as presently constituted or proposed usually does not deal well with the potential problem of moral hazard. Once home-owners know that the risk of poor market performance of their homes is borne by investors, they have an incentive to neglect to take steps to maintain the homes' values. They may thus create serious future losses for the investors. A calibrated model for assessing this moral hazard risk is presented that is suitable for a number of home equity conversion forms: 1) reverse mortgages, 2) home equity insurance, 3) shared appreciation mortgages, 4) housing partnerships, 5) shared equity mortgages and 6) sale of remainder interest. Modifications of these forms involving real estate price indices are proposed that might deal better with the problem of moral hazard.

JEL-codes: G21 (search for similar items in EconPapers)
Date: 1998-05
Note: AP
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

Published as Shiller, Robert J. and Alan N. Weiss. "Moral Hazard In Home Equity Conversion," Real Estate Economics, 2000, v28(1,Spring), 1-31.

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Working Paper: Moral Hazard in Home Equity Conversion (1998)
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