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This paper links the literatures on the life-cycle hypothesis, homeownership, home equity and pensions. Empirically, the focus is on the EU and USA. The paper aims to explore the extent that seniors extract their home equity and discuss the financial instruments available for equity extraction.

The study uses data from the EU and USA to determine homeownership rates, house values and mortgage debt. With these values, the amount of seniors’ home equity is measured for each country. The usage of home equity extraction methods is reported and factors limiting their use are identified.

Seniors’ home equity is a substantial share of their total wealth. Estimates for 2013 are that their home equity equals about €5tn in the USA and over €8tn in large EU countries. The authors find that only a small share of seniors extracts their home equity. While there are supply side constraints in many countries, the evidence suggests that the cause of low extraction rates is the lack of demand. Various reasons for the lack of demand are discussed.

The increasing share of seniors in most countries’ population suggests that there will be increasing pressure on public pension systems. One among many options to address this issue is to impose a wealth test for eligibility, where wealth includes home equity. This study suggests that although home equity is substantial for many seniors, they are reluctant to access the funds.

The paper highlights the importance of home equity in the EU and USA and the factors that affect the primary methods of extraction.

The purpose of this study is to demonstrate that the conventional mortgage system is not appropriate for household finance because it encourages equity extraction and excessive leverage during housing boom and leads to negative equity during a housing bust, a situation that translates into mortgage defaults and foreclosures. Home financing could alternatively be structured as a diminishing partnership preventing the homeowner from ever having negative equity.

Using Johansen’s cointegration test, the authors provide evidence of a long-run relationship between the delinquency rates, volume of refinancing and the change in house price index (HPI) during the 1994–2019 period. To unravel the short run dynamics between these variables, the authors used a Granger causality test that concludes that the volume of refinancing and the change in the HPI Granger cause default rates.

The authors provide evidence that under the current conventional mortgage system, excessive refinancing opportunities and equity extraction that are the main factors determining delinquency rates leading to a non-sustainable homeownership.

If mortgages were such that they do not incentivize defaults and foreclosures during a housing downturn, the recovery of the housing market always leads to capital gains. Therefore, disincentivizing refinancing and equity extraction would lead to a more sustainable homeownership.

Households would be encouraged to pursue sustainable homeownership through a partnership-based model with long-term wealth accumulation for themselves and their heirs rather than short-term home ownership through the conventional mortgage system, leading to negative equity and defaults when the housing market slumps.

Policymakers ought to rethink the mortgage design by promoting partnership-based finance to protect the equity a household accumulates over a lifetime and thereby enhancing stable and sustainable homeownership.

The authors analyzed annuitization preferences when retired people extract cash from their homes. Based on 2,608 viager (home reversion) transactions, the authors study the relations between annuitization, negotiation, cash extraction, age, gender and marital status.

A database comprising 2,608 transactions is used. The three-stage least squares (3SLS) and moderation models are implemented, with a focus on potential adverse selection issues.

The authors found that difficulties in selling a property generally result in increased annuitization. The single men's group endures gender inequality, suffering from limitations in their possibility to extract wealth and annuitize, as well as an additional price discount during negotiation. Young single men, as compared to young single women and young couples, must consent to a substantial price reduction if they prefer a high down payment and limited price reductions if they prefer annuities. Elderly single men, as compared to young single men, have less capacity to negotiate, a concern that is reinforced when they prefer annuities.

Among the home equity conversion products, the academic real estate literature has intensely analyzed the reverse mortgage. The viager is distinct from a mortgage in that it consists of the true sale of a property without bank involvement. This product deserves reinforced attention in an aging continental Europe. It exists in numerous countries (France, Belgium, Germany, Italy, Spain, etc.).

The primary purpose of this paper is to review and critique Taleb's notion of black swan blindness for a subset of the broader field of financial economics – the search for capital adequacy rules for financial institutions who invest in residential mortgages. This search entails the analysis and prediction of extreme events in housing and mortgage markets.

The focus of this paper concerns efforts to assess the likelihood and consequences of extreme and consequential economic events prior to their occurrence. The goal is to assess the criticism offered by Taleb that economists overstate the understanding of extreme events. One piece of evidence consists of a case study of the literature and policies regarding capital adequacy for financial institutions who invest in residential mortgages. The other is a review of recent literature about the crisis that offers similar conclusions.

The evidence suggests that the criticism is valid. The case study reviews a number of areas in which the search for capital adequacy reflected the traits of black swan blindness as described by Taleb. The review of the recent literature about the crisis highlights a number of papers that reach similar conclusions. These include high level overviews of the literature on the crisis, e.g. Lo, a number of papers that specifically focus on housing and mortgage markets, and some very recent work about agent based modeling and complexity theory presented at the 2012 ARES meetings.

The conclusion suggests a number of ways in which economists can combat the potential of black swan blindness is our search for extreme events. One suggestion is to combat the error of confirmation with ongoing testing. Combating overly simplistic narratives can also be addressed by listening more carefully to the criticisms by people outside the field. Pay more attention to silent evidence by having more substantial and ongoing consumer testing of new products, more work to identify best practices, and more resources to enforce lending laws. Finally, more attention needs to be focused upon assumptions in the models that are based upon limited empirical evidence and, if found later to be false, may lead to dire outcomes.

These include more and ongoing evaluation of stress tests. New rules to adjust capital requirements over the business cycle are consistent with the suggestions of the paper. Economists need to spend more time exploring and learning from outliers in the models.

The recent crisis has been driven by a wide variety of factors from within many sectors and agents. The outcome has been a major problem for people in many sectors and regions of the economy. The hope is that economists can do a better job in the future to help policymakers and others be more prepared for the potential of extreme events in the hopes of avoiding them in the future or at least reducing their likelihood and damage caused by them.

The paper draws upon a wide variety of literature to establish its main points. Central to it is a review of an issue on which the author had substantial experience – academic and professional – and that also played a major role in the crisis – inadequate capital for an extreme downturn in house prices.

This paper examines how the macroeconomic environment affects the determinants of prepayment of mortgage loans from October 2004 to February 2020. For more accurate analysis, the authors define the timing of prepayment not only before the loan maturity but also at the time when 50% or more of the loan principal is repaid. The results show that, during the global financial crisis as well as the recent period of low interest rates, macroeconomic variables such as interest rate spreads and housing prices have a different effect compared to the normal situation. Also, significant explanatory variables, such as debt to income (DTI) ratio, loan amount ratio and poor credit score, have different effects depending on the macroenvironment. On the other hand, in all periods, the possibility of prepayment increases as comprehensive loan to value (CLTV) increases, and the younger the age, the shorter the loan maturity. The results suggest that, in the case of ultralong (40 years) mortgage loans recently introduced to support young people purchasing houses, the prepayment risk can be, at least partially, migrated by offsetting the increase in prepayment by young people and the decrease in prepayment due to long loan maturity. In addition, this study confirms that the accelerated time failure model compared to the logit model and COX proportional risk model has the potential to be more appropriate as a prepayment model for individual borrower analysis in terms of the explanatory power.

The purpose of this study is to estimate the housing wealth effect on non-durable consumption using data from the Spanish Survey of Household Finances (Encuesta Financiera de las Familias, SHF) for the period 2002–2017.

The authors aim at identifying the effect of anticipated and unanticipated housing wealth changes on consumption with the sample of homeowners, following Paiella and Pistaferri (2017).

Results of this study lead us to conclude that there exists a strong housing wealth effect on consumption for the Spanish households.

The authors provide evidence against the permanent income model. They also analyse how the results change with income expectations, age and the household indebtedness rate. Finally, they detect a strong excess sensitivity to income.

This research seeks to understand the drivers of outward foreign direct investments (FDIs) by state-owned emerging economy firms, the characteristics of their overseas FDI projects and investment locations, and the effects of home and host institutions on the market entry strategies, taking into account the legitimacy of state ownership.

The discussion is based on a comprehensive review of conceptual and empirical literature, as well as case studies available from recognized journals in the field.

State-owned emerging economy firms pursue outward FDIs to respond to policy incentives of the home government and to reduce its political influence over the firm. FDI projects are often large and risky and have low business values. They often enter countries where state ownership is perceived as more legitimate while engaging in legitimacy-building activities in these countries. When their home country has a high level of institutional restrictions, they are less likely to use acquisitions or hold high levels of equity control in foreign subsidiaries. To strengthen local legitimacy, they often use greenfield investments or share equity control with local firms in foreign subsidiaries, particularly when the host country is endowed with strategic assets or when it has a high level of institutional restrictions. However, when having high levels of state ownership or strong political connections, they often commit a high level of resources and hold a high level of equity control in foreign subsidiaries.

The literature mostly investigates the FDI of firms that are structurally separate from the institutions. When the institutions are endogenous as presented in this research, their strategic choices are substantially influenced by noncommercial political motives and perception on their political image.

This study, using systematic literature review (SLR) aims to highlight and summarise current studies on the factors influencing customers’ Islamic home financing (IHF) selection and Islamic banking product preference, which has gained popularity within the banking sector over the past three decades. The SLR could map evolution and research fields, recommend a particular categorisation and determine primary issues to demonstrate current trends, future research directions and theoretical development.

The SLR was performed with a four-step reporting standard for the systematic evidence syntheses review method (research question formulation, systematic searching, quality assessment and data extraction) using 33 screened articles between 2008 and 2020 from two primary databases (Scopus and Web of Science) and one supporting database (Google Scholar).

The resulting factors could be categorised into four primary themes: consumer behaviour, consumer attributes, bank attributes and bank attributes (Islamic). The themes were subsequently divided into 16 sub-themes. Notably, all the factors proved essential for consumers’ evolving preferences and product competitiveness in the market.

This study encountered two limitations based on database selection and research period.

This SLR aimed to offer useful insights into the factors that should be prioritised by financial institutions for marketing approaches by investigating consumer behaviours.

This study pioneered an SLR on the study area for useful insights into the current research limitations and recommendations on future study directions. Specifically, the study method facilitated critical discussions and comparisons to past research outcomes and objectivity with triangulation from distinct perspectives.