Reverse Mortgage Collateral: Undermaintenance or Overappraisal?
Posted: 6 Apr 2017
Date Written: April 1, 2017
Using information on mortgages insured by the Federal Housing Administration, this article examines the disproportionate decline in collateral values associated with reverse mortgages. Properties securing reverse mortgages sell at a sharp discount in foreclosure relative to similar properties securing forward purchase loans. This discount, however, does not increase over time as expected of depreciation related to property under maintenance. Further, a similar discount is observed on forward refinance loans. An overestimate of the collateral value at origination, rather than subsequent level of property maintenance, may be responsible for greater-than-expected loss severities.
Keywords: Federal Housing Administration, FHA, Reverse Mortgage, Home Equity Conversion Mortgage, HECM, Appraisal, Maintenance, Property
JEL Classification: R3, R30, R38, G18, G22, G28
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