Home Equity Conversion Mortgages: The Secondary Market Investor Experience

41 Pages Posted: 20 Oct 2017

See all articles by Jaclene Begley

Jaclene Begley

Federal National Mortgage Association (Fannie Mae)

Hamilton B. Fout

Federal National Mortgage Association (Fannie Mae); Kansas State University

Michael LaCour-Little

Federal National Mortgage Association (Fannie Mae); California State University at Fullerton

Nuno Mota

Federal National Mortgage Association (Fannie Mae)

Date Written: September 29, 2017

Abstract

We analyze Fannie Mae’s experience with the Home Equity Conversion Mortgage product. From 1993-2010, Fannie Mae acquired 492,465 of these loans, representing 75% of the total market. During this period, prior to recent program changes, credit screening was not an element in the underwriting process. Using loan and borrower characteristics, we model the probability of adverse terminations; and given adverse termination, loss severity. We then show how the addition of credit information affects our models. Finally, we use credit data to provide a counterfactual assessment of the extent to which better screening might have affected portfolio performance. We find that imposing a minimum borrower credit score of 620 would have prevented 22.7% of loans with credit information from being originated and, simultaneously, would have reduced adverse terminations by 31% and subsequent losses by nearly $250 million, or 32%.

Keywords: Reverse Mortgage, Seniors, Life-Cycle Consumption Smoothing

JEL Classification: J14, G21, R21, D15

Suggested Citation

Begley, Jaclene and Fout, Hamilton B. and LaCour-Little, Michael and Mota, Nuno, Home Equity Conversion Mortgages: The Secondary Market Investor Experience (September 29, 2017). Available at SSRN: https://ssrn.com/abstract=3055881 or http://dx.doi.org/10.2139/ssrn.3055881

Jaclene Begley

Federal National Mortgage Association (Fannie Mae) ( email )

3900 Wisconsin Avenue, NW
Washington, DC 20016-2892
United States

Hamilton B. Fout

Federal National Mortgage Association (Fannie Mae) ( email )

3900 Wisconsin Avenue, NW
Washington, DC 20016-2892
United States

Kansas State University ( email )

Manhattan, KS 66502-4001
United States

Michael LaCour-Little (Contact Author)

Federal National Mortgage Association (Fannie Mae) ( email )

3900 Wisconsin Avenue, NW
Washington, DC 20016-2892
United States
202-752-3318 (Phone)

California State University at Fullerton ( email )

5133 Mihaylo Hall
Fullerton, CA 92834-6848
United States
657-278-4014 (Phone)
657-278-2161 (Fax)

Nuno Mota

Federal National Mortgage Association (Fannie Mae) ( email )

3900 Wisconsin Avenue, NW
Washington, DC 20016-2892
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
87
Abstract Views
580
rank
288,191
PlumX Metrics