Reverse Mortgages: Private Incentives, Market Constraints, and Public Policy

Posted: 9 Jul 1998

See all articles by David W. Rasmussen

David W. Rasmussen

Pepper Institute on Aging and Public Policy

Isaac F. Megbolugbe

Federal National Mortgage Association (Fannie Mae) - Office of Housing Research

Barbara A. Morgan

Florida State University - DeVoe L. Moore Center for the Study of Critical Issues in Economic Policy and Government

Date Written: December 1995

Abstract

This paper considers the (slowly) emerging reverse mortgage market from the perspective of this financial planning and risk management perspective. Agency problems, moral hazard issues, adverse selection, and uncertainty about housing market conditions are factors that affect the development of the reverse mortgage market because they undermine the incentive compatibility between buyers and sellers. These issues are examined in the context of the financial planning perspective. The use of housing equity as a financial planning and risk management tool is partly determined by public policies not directly related to reverse mortgages per se. Factors that may have a substantial impact on the reverse mortgage market are explored in this paper. Among them are tax policies that tend to affect the speed with which households increase home equity (e.g., tax policies that make 15 year mortgages relatively more attractive), developments in the private long-term care insurance market, and public "safety-net" policies that influence the choice between in-home care versus nursing home care.

JEL Classification: G21, H53

Suggested Citation

Rasmussen, David W. and Megbolugbe, Isaac F. and Morgan, Barbara A., Reverse Mortgages: Private Incentives, Market Constraints, and Public Policy (December 1995 ). Available at SSRN: https://ssrn.com/abstract=9009

David W. Rasmussen (Contact Author)

Pepper Institute on Aging and Public Policy ( email )

636 West Call St.
Tallahasse, FL 30306-1121
United States
904-644-8826 (Phone)
904-644-0581 (Fax)

Isaac F. Megbolugbe

Federal National Mortgage Association (Fannie Mae) - Office of Housing Research ( email )

4000 Wisconsin Ave. NW
Washington, DC 20016
United States
202-274-5065 (Phone)
202-274-8111 (Fax)

Barbara A. Morgan

Florida State University - DeVoe L. Moore Center for the Study of Critical Issues in Economic Policy and Government

Tallahasse, FL 30306-2180
United States

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