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Michael Sherris - One of the best experts on this subject based on the ideXlab platform.
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to borrow or insure long term care costs and the impact of housing
Insurance Mathematics & Economics, 2019Co-Authors: Adam Wenqiang Shao, Hua Chen, Michael SherrisAbstract:Abstract We assess the impact of housing, the availability of Reverse Mortgages and long-term care (LTC) insurance on a retiree’s optimal portfolio choice and consumption decisions using a multi-period life cycle model that takes into consideration individual longevity risk, health shocks and house price risk. We determine how much an individual should borrow against their home equity and how much to insure health care costs with LTC insurance. We introduce an endogenous grid method, along with a regression based approach, to improve computational efficiency and avoid the curse of dimensionality. Our results confirm that borrowing against home equity provides higher consumption in earlier years and longevity insurance. LTC insurance transfers wealth from healthy states to disabled states, but reduces early consumption because of the payment of insurance premiums. Housing is an illiquid asset that is important in meeting bequest motives, and it reduces the demand for LTC insurance for the wealthy. We show that the highest welfare benefits come from combining a Reverse Mortgage with LTC insurance because of strong complementary effects between them. This result highlights the benefits of innovative products that bundle these two products together.
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developing equity release markets risk analysis for Reverse Mortgages and home reversions
The North American Actuarial Journal, 2014Co-Authors: Daniel H Alai, Katja Hanewald, Hua Chen, Daniel Cho, Michael SherrisAbstract:Equity release products are sorely needed in an aging population with high levels of home ownership. There has been a growing literature analyzing risk components and capital adequacy of Reverse Mortgages in recent years. However, little research has been done on the risk analysis of other equity release products, such as home reversion contracts. This is partly due to the dominance of Reverse Mortgage products in equity release markets worldwide. In this article we compare cash flows and risk profiles from the provider's perspective for Reverse Mortgage and home reversion contracts. An at-home/in long-term care split termination model is employed to calculate termination rates, and a vector autoregressive (VAR) model is used to depict the joint dynamics of economic variables including interest rates, house prices, and rental yields. We derive stochastic discount factors from the no arbitrage condition and price the no negative equity guarantee in Reverse Mortgages and the lease for life agreement in the ...
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developing equity release markets risk analysis for Reverse Mortgages and home reversions
2013Co-Authors: Daniel H Alai, Katja Hanewald, Hua Chen, Daniel Cho, Michael SherrisAbstract:Equity release products are sorely needed in an ageing population with high levels of home ownership. There has been a growing literature analyzing risk components and capital adequacy of Reverse Mortgages in recent years. However, little research has been done on the risk analysis of other equity release products, such as home reversion contracts. This is partly due to the dominance of Reverse Mortgage products in equity release markets worldwide. In this paper, we compare cash flows and risk profiles from the provider’s perspective for Reverse Mortgage and home reversion contracts. An at-home/in long-term care split termination model is employed to calculate termination rates, and a vector autoregressive (VAR) model is used to depict the joint dynamics of economic variables including interest rates, house prices and rental yields. We derive stochastic discount factors from the no arbitrage condition and price the no negative equity guarantee in Reverse Mortgages and the lease for life agreement in the home reversion plan accordingly. We compare expected payoffs and assess riskiness of these two equity release products via commonly used risk measures, i.e., Value-at-Risk (VaR) and Conditional Value-at-Risk (CVaR).
Daniel H Alai - One of the best experts on this subject based on the ideXlab platform.
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developing equity release markets risk analysis for Reverse Mortgages and home reversions
The North American Actuarial Journal, 2014Co-Authors: Daniel H Alai, Katja Hanewald, Hua Chen, Daniel Cho, Michael SherrisAbstract:Equity release products are sorely needed in an aging population with high levels of home ownership. There has been a growing literature analyzing risk components and capital adequacy of Reverse Mortgages in recent years. However, little research has been done on the risk analysis of other equity release products, such as home reversion contracts. This is partly due to the dominance of Reverse Mortgage products in equity release markets worldwide. In this article we compare cash flows and risk profiles from the provider's perspective for Reverse Mortgage and home reversion contracts. An at-home/in long-term care split termination model is employed to calculate termination rates, and a vector autoregressive (VAR) model is used to depict the joint dynamics of economic variables including interest rates, house prices, and rental yields. We derive stochastic discount factors from the no arbitrage condition and price the no negative equity guarantee in Reverse Mortgages and the lease for life agreement in the ...
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developing equity release markets risk analysis for Reverse Mortgages and home reversions
2013Co-Authors: Daniel H Alai, Katja Hanewald, Hua Chen, Daniel Cho, Michael SherrisAbstract:Equity release products are sorely needed in an ageing population with high levels of home ownership. There has been a growing literature analyzing risk components and capital adequacy of Reverse Mortgages in recent years. However, little research has been done on the risk analysis of other equity release products, such as home reversion contracts. This is partly due to the dominance of Reverse Mortgage products in equity release markets worldwide. In this paper, we compare cash flows and risk profiles from the provider’s perspective for Reverse Mortgage and home reversion contracts. An at-home/in long-term care split termination model is employed to calculate termination rates, and a vector autoregressive (VAR) model is used to depict the joint dynamics of economic variables including interest rates, house prices and rental yields. We derive stochastic discount factors from the no arbitrage condition and price the no negative equity guarantee in Reverse Mortgages and the lease for life agreement in the home reversion plan accordingly. We compare expected payoffs and assess riskiness of these two equity release products via commonly used risk measures, i.e., Value-at-Risk (VaR) and Conditional Value-at-Risk (CVaR).
Hua Chen - One of the best experts on this subject based on the ideXlab platform.
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to borrow or insure long term care costs and the impact of housing
Insurance Mathematics & Economics, 2019Co-Authors: Adam Wenqiang Shao, Hua Chen, Michael SherrisAbstract:Abstract We assess the impact of housing, the availability of Reverse Mortgages and long-term care (LTC) insurance on a retiree’s optimal portfolio choice and consumption decisions using a multi-period life cycle model that takes into consideration individual longevity risk, health shocks and house price risk. We determine how much an individual should borrow against their home equity and how much to insure health care costs with LTC insurance. We introduce an endogenous grid method, along with a regression based approach, to improve computational efficiency and avoid the curse of dimensionality. Our results confirm that borrowing against home equity provides higher consumption in earlier years and longevity insurance. LTC insurance transfers wealth from healthy states to disabled states, but reduces early consumption because of the payment of insurance premiums. Housing is an illiquid asset that is important in meeting bequest motives, and it reduces the demand for LTC insurance for the wealthy. We show that the highest welfare benefits come from combining a Reverse Mortgage with LTC insurance because of strong complementary effects between them. This result highlights the benefits of innovative products that bundle these two products together.
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developing equity release markets risk analysis for Reverse Mortgages and home reversions
The North American Actuarial Journal, 2014Co-Authors: Daniel H Alai, Katja Hanewald, Hua Chen, Daniel Cho, Michael SherrisAbstract:Equity release products are sorely needed in an aging population with high levels of home ownership. There has been a growing literature analyzing risk components and capital adequacy of Reverse Mortgages in recent years. However, little research has been done on the risk analysis of other equity release products, such as home reversion contracts. This is partly due to the dominance of Reverse Mortgage products in equity release markets worldwide. In this article we compare cash flows and risk profiles from the provider's perspective for Reverse Mortgage and home reversion contracts. An at-home/in long-term care split termination model is employed to calculate termination rates, and a vector autoregressive (VAR) model is used to depict the joint dynamics of economic variables including interest rates, house prices, and rental yields. We derive stochastic discount factors from the no arbitrage condition and price the no negative equity guarantee in Reverse Mortgages and the lease for life agreement in the ...
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developing equity release markets risk analysis for Reverse Mortgages and home reversions
2013Co-Authors: Daniel H Alai, Katja Hanewald, Hua Chen, Daniel Cho, Michael SherrisAbstract:Equity release products are sorely needed in an ageing population with high levels of home ownership. There has been a growing literature analyzing risk components and capital adequacy of Reverse Mortgages in recent years. However, little research has been done on the risk analysis of other equity release products, such as home reversion contracts. This is partly due to the dominance of Reverse Mortgage products in equity release markets worldwide. In this paper, we compare cash flows and risk profiles from the provider’s perspective for Reverse Mortgage and home reversion contracts. An at-home/in long-term care split termination model is employed to calculate termination rates, and a vector autoregressive (VAR) model is used to depict the joint dynamics of economic variables including interest rates, house prices and rental yields. We derive stochastic discount factors from the no arbitrage condition and price the no negative equity guarantee in Reverse Mortgages and the lease for life agreement in the home reversion plan accordingly. We compare expected payoffs and assess riskiness of these two equity release products via commonly used risk measures, i.e., Value-at-Risk (VaR) and Conditional Value-at-Risk (CVaR).
Katja Hanewald - One of the best experts on this subject based on the ideXlab platform.
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is there a demand for Reverse Mortgages in china evidence from two online surveys
Journal of Economic Behavior and Organization, 2020Co-Authors: Katja Hanewald, Hazel Bateman, Hanming FangAbstract:Abstract Reverse Mortgages provide an alternative source of retirement funding by allowing older homeowners to borrow against their home. However, a recent pilot program of reserve Mortgage products in several large Chinese cities saw almost no take up. To ascertain the demand for Reverse Mortgages in China, we conduct and analyze two online surveys that focus respectively on homeowners aged 45–65 as potential purchasers, and on adult children in the 20–49 age group representing children of potential purchasers. We address the reported shortcomings of the pilot Reverse Mortgage product by testing an improved product design presented in a clear and comprehensive format. We find that 89% of older Chinese homeowners would be interested in this new Reverse Mortgage product, and 84% of adult children would recommend such a product to their parents. Participants in both surveys reported that they would use the Reverse Mortgage payments to fund a more comfortable retirement and to pay for better medical treatments and aged care services. Respondents’ interest in Reverse Mortgages was associated with their familiarity and understanding of the product, and its perceived potential to address liquidity constraints in retirement. Health status, aged care preferences and proxies for intergenerational links were also important. Our results are contrary to the common perception of intergenerational expectations of wealth transfer in China, and provide new evidence in support of the potential development of China’s Reverse Mortgage market.
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is there a demand for Reverse Mortgages in china evidence from two online surveys
National Bureau of Economic Research, 2019Co-Authors: Katja Hanewald, Hazel Bateman, Hanming FangAbstract:Reverse Mortgages provide an alternative source of retirement funding by allowing older homeowners to borrow against their home. However, a recent pilot program of reserve Mortgage products in several large Chinese cities saw almost no take up. To ascertain the demand for Reverse Mortgages in China, a survey was conducted and analysed two online surveys that focus respectively on homeowners aged 45-65 as potential purchasers, and on adult children in the 20-49 age group representing children of potential purchasers. It addressed the reported shortcomings of the pilot Reverse Mortgage product by testing an improved product design presented in a clear and comprehensive format. In stark contrast, It was found that 89% of older Chinese homeowners would be interested in this new Reverse Mortgage product, and 84% of adult children would recommend such a product to their parents. Participants in both surveys reported that they would use the Reverse Mortgage payments to fund a more comfortable retirement and to pay for better medical treatments and aged care services. Respondents' interest in Reverse Mortgages was associated with their familiarity and understanding of the product, and its perceived potential to address liquidity constraints in retirement. Health status, aged care preferences and proxies for intergenerational links were also important. The results are contrary to the common perception of intergenerational expectations of wealth transfer in China, and provide new evidence in support of the potential development of China's Reverse Mortgage market.
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developing equity release markets risk analysis for Reverse Mortgages and home reversions
The North American Actuarial Journal, 2014Co-Authors: Daniel H Alai, Katja Hanewald, Hua Chen, Daniel Cho, Michael SherrisAbstract:Equity release products are sorely needed in an aging population with high levels of home ownership. There has been a growing literature analyzing risk components and capital adequacy of Reverse Mortgages in recent years. However, little research has been done on the risk analysis of other equity release products, such as home reversion contracts. This is partly due to the dominance of Reverse Mortgage products in equity release markets worldwide. In this article we compare cash flows and risk profiles from the provider's perspective for Reverse Mortgage and home reversion contracts. An at-home/in long-term care split termination model is employed to calculate termination rates, and a vector autoregressive (VAR) model is used to depict the joint dynamics of economic variables including interest rates, house prices, and rental yields. We derive stochastic discount factors from the no arbitrage condition and price the no negative equity guarantee in Reverse Mortgages and the lease for life agreement in the ...
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developing equity release markets risk analysis for Reverse Mortgages and home reversions
2013Co-Authors: Daniel H Alai, Katja Hanewald, Hua Chen, Daniel Cho, Michael SherrisAbstract:Equity release products are sorely needed in an ageing population with high levels of home ownership. There has been a growing literature analyzing risk components and capital adequacy of Reverse Mortgages in recent years. However, little research has been done on the risk analysis of other equity release products, such as home reversion contracts. This is partly due to the dominance of Reverse Mortgage products in equity release markets worldwide. In this paper, we compare cash flows and risk profiles from the provider’s perspective for Reverse Mortgage and home reversion contracts. An at-home/in long-term care split termination model is employed to calculate termination rates, and a vector autoregressive (VAR) model is used to depict the joint dynamics of economic variables including interest rates, house prices and rental yields. We derive stochastic discount factors from the no arbitrage condition and price the no negative equity guarantee in Reverse Mortgages and the lease for life agreement in the home reversion plan accordingly. We compare expected payoffs and assess riskiness of these two equity release products via commonly used risk measures, i.e., Value-at-Risk (VaR) and Conditional Value-at-Risk (CVaR).
Stephanie Moulton - One of the best experts on this subject based on the ideXlab platform.
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debt stress and debt illusion the role of consumer credit Reverse and standard Mortgages
2020Co-Authors: Donald R Haurin, Stephanie Moulton, Cazilia Loibl, Julia BrownAbstract:Objectives. This study examines the relationship of debt stress and Reverse Mortgage borrowing and compares it to stress from standard Mortgages and consumer debt. Debt stress is measured as a self-reported response to the amount of debt. Method. Using a unique national data set of 1,026 homeowners who chose whether to obtain a Reverse Mortgage in 2010, we estimate the relationship of 2014 levels of debt stress with various types of debt, assets, and income. Using an ordered probit model, we address the endogeneity of our measures of Mortgage and consumer debt using an instrumental variables regression model. Results. We find that consumer debt causes more stress per dollar of debt compared to Mortgage debt. Reverse Mortgages cause a relatively low level of stress per dollar of debt compared with standard Mortgage debt. The average treatment effect of originating a Reverse Mortgage indicates statistically significantly higher probability of reporting no and not very much debt stress. Discussion. Reverse Mortgage debt causes a complex stress response. Stress per dollar of debt is lower for Reverse than standard Mortgages four years after origination. However, Reverse Mortgages’ loan balance grows over time causing total stress to increase, while stress from a standard Mortgage decreases as it is repaid. If an older adult uses Reverse Mortgage funds to repay consumer debt then total stress is reduced.
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reminders to pay property tax payments a field experiment of older adults with Reverse Mortgages
Social Science Research Network, 2019Co-Authors: Stephanie Moulton, Donald R Haurin, Cazilia Loibl, Michael J Collins, Julia BrownAbstract:One of the risks to financial security among older homeowners is the failure to pay property taxes. Tax bills are often due in lump sums, and if the homeowner has a failure of prospective memory, they may neglect to make a payment. This field study tests if reminders to plan ahead and to pay property taxes are effective with an especially liquidity constrained population, older adults who take out a Reverse Mortgage to extract home equity. Letters mailed to remind homeowners about their obligations reduce the rate of defaults on property taxes, as well as increase timely payments for homeowners’ insurance premiums. These effects are concentrated among subgroups of homeowners who are likely to be the most vulnerable, such as homeowners with no liquid assets, and single households, but also those with more capacity to take actions, such as relatively younger and healthier homeowners.
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spatial variation in Reverse Mortgages usage house price dynamics and consumer selection
Journal of Real Estate Finance and Economics, 2016Co-Authors: Donald R Haurin, Stephanie Moulton, Maximilian D Schmeiser, Jason S Seligman, Wei ShiAbstract:Abstract Reverse Mortgages have been obtained by nearly one million senior households. In the future, the number of eligible households will grow substantially, about 80 % are homeowners, and many of them have substantial equity in their home. We study state-level variations in rate of originations of HUD’s Home Equity Conversion Mortgage (HECM) product. Our focus is on the impact of house prices on the origination rate. We test the hypothesis that in states where real house prices are volatile and the current level is above the long term norm, seniors rationally anticipate future reductions in house prices and lock-in their housing equity gains by obtaining a Reverse Mortgage. We test alternative hypotheses, the first being that seniors living in states with high rates of house price appreciation increase their use of HECMs as a means to convert an illiquid wealth capital gain into a more liquid asset. A second alternative hypothesis is that the intertemporal changes in originations of HECMs were a result of changes in the supply of Mortgage originators. Our empirical work supports the hypothesis that seniors used HECMs to insure against house price declines, but we find no evidence in support of the alternative hypotheses.
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how home equity extraction and Reverse Mortgages affect the credit outcomes of senior households
2016Co-Authors: Stephanie Moulton, Donald R Haurin, Samuel Dodini, Maximilian D SchmeiserAbstract:This paper examines how the extraction of home equity, including but not limited to equity extracted through Reverse Mortgages, affects credit outcomes of senior households. We use data from the Federal Reserve Bank of New York/Equifax Consumer Credit Panel, supplemented with our unique credit panel dataset of Reverse Mortgage borrowers. We track credit outcomes for seniors who extracted equity through cash-out refinancing, home equity lines of credit or home equity loans between 2008 and 2011, and a random sample of nonextractors. We estimate differences-in-differences by extraction channel using individual, fixed-effects panel regression. We find that seniors extracting equity through Reverse Mortgages have greater reductions in consumer debt, and are less likely to become delinquent or foreclose three years post origination relative to other extractors and nonextractors. These effects are greater among households who experienced a credit shock within the two years prior to loan origination. To help isolate the effect of the extraction channel on credit outcomes, we re-estimate our models with a matched sample of consumers at the time of extraction. We find that otherwise similar HECM borrowers have larger reductions in credit card debt post-extraction than other equity borrowers and non-borrowers, with no significant difference in the rates of delinquency on non-housing debt post extraction. For HECM borrowers, we find that increased initial withdrawal and increased monthly cash flow contribute to the reduction in credit card debt.
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an analysis of default risk in the home equity conversion Mortgage hecm program
Journal of Urban Economics, 2015Co-Authors: Stephanie Moulton, Donald R HaurinAbstract:While Reverse Mortgages are intended as a tool to enable financial security for older homeowners, in 2014, nearly 12 percent of Reverse Mortgage borrowers in the federally insured Home Equity Conversion Mortgage (HECM) program were in default on their property taxes or homeowners insurance. Unlike the traditional Mortgage market, there were no risk-based underwriting guidelines for HECMs through 2014. In response to the relatively high default rate, a variety of policy responses were implemented, including establishing underwriting guidelines. However, there is a lack of data and analysis to inform such criteria. Our analysis follows 30,000 seniors counseled for Reverse Mortgages between 2006 and 2011. The data includes comprehensive financial and credit report attributes, not typically available in analyses of Reverse Mortgage borrowers. Using a bivariate probit model that accounts for selection, we estimate the likelihood of tax and insurance default. Financial characteristics that increase default risk include the percentage of funds withdrawn in the first month of the loan, a lower credit score, higher property tax to income ratio, low or no unused revolving credit, and a history of being past due on Mortgage payments or having a tax lien on the property. Our estimate of the elasticity of default with respect to credit scores is similar to that for closed-end home equity loans, but higher than that for HELOCs. We simulate the effects of alternative underwriting criteria and policy changes on the probability of take-up and default. Reductions in the default rate with a minimal effect on participation can be achieved by requiring that participants with low credit scores set aside some of their HECM funds for future property tax and insurance payments, a form of escrowing.