Home Equity Conversion Mortgages: The Secondary Market Investor Experience

41 Pages Posted: 20 Oct 2017

See all articles by Jaclene Begley

Jaclene Begley

GW CWAS; Federal National Mortgage Association (Fannie Mae)

Hamilton B. Fout

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

Michael LaCour-Little

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

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 Fout, Hamilton B. and LaCour-Little, Michael 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

GW CWAS ( email )

GW CWAS
Washington, DC 20016-2892
United States

Federal National Mortgage Association (Fannie Mae) ( email )

GW CWAS
Washington, DC 20016-2892
United States

Hamilton B. Fout

Kansas State University ( email )

Manhattan, KS 66502-4001
United States

Federal National Mortgage Association (Fannie Mae) ( email )

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

Michael LaCour-Little (Contact Author)

California State University at Fullerton ( email )

5133 Mihaylo Hall
Fullerton, CA 92834-6848
United States
314-374-9626 (Phone)

Federal National Mortgage Association (Fannie Mae) ( email )

1100 15th St NW
Washington, DC 20005
United States
202-752-3318 (Phone)

Nuno Mota

Federal National Mortgage Association (Fannie Mae) ( email )

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

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
111
Abstract Views
1,111
rank
330,028
PlumX Metrics