Moral Hazard in Home Equity Conversion
42 Pages Posted: 21 Jul 2000 Last revised: 29 May 2022
Date Written: May 1998
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.
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
The Efficiency of the Market for Single-Family Homes
By Karl E. Case and Robert J. Shiller
-
Prices of Single Family Homes Since 1970: New Indexes for Four Cities
By Karl E. Case and Robert J. Shiller
-
The Baby Boom, the Baby Bust, and the Housing Market
By N. Gregory Mankiw and David N. Weil
-
Forecasting Prices and Excess Returns in the Housing Market
By Karl E. Case and Robert J. Shiller
-
The Behavior of Home Buyers in Boom and Post-Boom Markets
By Karl E. Case and Robert J. Shiller
-
Leverage and House-Price Dynamics in U.S. Cities
By Owen A. Lamont and Jeremy C. Stein
-
By Karl E. Case, Robert J. Shiller, ...
-
Leverage and House-Price Dynamics in U.S. Cities
By Owen A. Lamont and Jeremy C. Stein
-
The Long-Run Relationship between House Prices and Income: Evidence from Local Housing Markets