Spatial Variation in Reverse Mortgages Usage: House Price Dynamics and Consumer Selection

30 Pages Posted: 25 Jun 2014

See all articles by Donald R. Haurin

Donald R. Haurin

Ohio State University (OSU) - Economics

Chao Ma

Ohio State University (OSU) - Economics

Stephanie Moulton

Ohio State University- John Glenn College of Public Affairs

Maximilian D. Schmeiser

Amazon Lending

Jason S. Seligman

U.S. Department of the Treasury - Office of Economic Policy

Wei Shi

Ohio State University (OSU) - Economics

Multiple version iconThere are 2 versions of this paper

Date Written: June 1, 2014

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 percent 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.

Keywords: Reverse Mortgages, Mortgage Choice, Senior Housing

JEL Classification: R21, R31, J14, G21

Suggested Citation

Haurin, Donald R. and Ma, Chao and Moulton, Stephanie and Schmeiser, Maximilian D. and Seligman, Jason S. and Shi, Wei, Spatial Variation in Reverse Mortgages Usage: House Price Dynamics and Consumer Selection (June 1, 2014). Available at SSRN: https://ssrn.com/abstract=2458183 or http://dx.doi.org/10.2139/ssrn.2458183

Donald R. Haurin (Contact Author)

Ohio State University (OSU) - Economics ( email )

154 N. Oval Mall
1010G Derby Hall
Columbus, OH 43210-1172
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614-292-0482 (Phone)
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Chao Ma

Ohio State University (OSU) - Economics ( email )

410 Arps Hall
1945 North High Street
Columbus, OH 43210
United States

Stephanie Moulton

Ohio State University- John Glenn College of Public Affairs ( email )

110 Page Hall
1810 College Road
Columbus, OH 43210
United States

Maximilian D. Schmeiser

Amazon Lending ( email )

Seattle, WA 98144
United States

Jason S. Seligman

U.S. Department of the Treasury - Office of Economic Policy ( email )

1500 Pennsylvania Avenue
Washington, DC 20220
United States
(202) 622-1683 (Phone)

Wei Shi

Ohio State University (OSU) - Economics ( email )

410 Arps Hall
1945 North High Street
Columbus, OH 43210
United States

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