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Article
Publication date: 14 August 2018

Mohammed Ishaq Mohammed and Noralfishah Sulaiman

The year 2020 heralds a landmark in Malaysia’s demographic and economic landscape, as the country is expected to become an ageing country, as well as aspiring of becoming…

Abstract

Purpose

The year 2020 heralds a landmark in Malaysia’s demographic and economic landscape, as the country is expected to become an ageing country, as well as aspiring of becoming a high-income country. The elderly persons are, however, reported to be vulnerable to the risk of financial insecurity in old age, which if not addressed can affect the country’s effort of accomplishing the Vision 2020 goal of becoming a high-income nation. Therefore, this paper aims to explore the factors that are capable of affecting the development of reverse mortgage market in Malaysia from the perspective of the financial service professionals.

Design/methodology/approach

The study is a qualitative design that involves the use of semi-structured questionnaire as data collection strategy. A total number of nine participants were selected for the interview using critical case sample scheme based on purposive sampling strategy.

Findings

The findings reveal that various economic, socio-demographic, behavioural and political/institutional factors would impose varying degrees of influence on reverse mortgage market in Malaysia.

Originality/value

The study is expected to spur discussion among stakeholders on the practicability of using reverse mortgage as alternative source of old-age financing in Malaysia.

Details

Qualitative Research in Financial Markets, vol. 10 no. 3
Type: Research Article
ISSN: 1755-4179

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Article
Publication date: 6 November 2017

Donald Haurin and Stephanie Moulton

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…

Abstract

Purpose

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.

Design/methodology/approach

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.

Findings

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.

Practical implications

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.

Originality/value

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

Details

Journal of European Real Estate Research, vol. 10 no. 3
Type: Research Article
ISSN: 1753-9269

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Article
Publication date: 9 August 2013

Carlos E. Ortiz, Charles A. Stone and Anne Zissu

One of the main risks to investors in securitized reverse mortgages is that the value of the reverse mortgage exceeds that of the property. The purpose of this paper is to…

Abstract

Purpose

One of the main risks to investors in securitized reverse mortgages is that the value of the reverse mortgage exceeds that of the property. The purpose of this paper is to develop a model that determines paths of constant cross‐over points across any pairs of interest and inflation rate.

Design/methodology/approach

To study the behavior of hyper‐surfaces, multivariate calculus was used.

Findings

Knowing that the value of a reverse mortgage increases above that of the property value once it goes beyond the cross‐over point t*, it is possible to construct a pool of reverse mortgages, such that for any pairs of inflation rate and interest rate (x, r), these reverse mortgages move along lines of constant cross‐over points t*.

Originality/value

The paper develops a model that determines paths of constant cross‐over points across any pairs of interest and inflation rate, which can be used when structuring pools of reverse mortgage‐backed securities, to credit‐enhance investors.

Details

The Journal of Risk Finance, vol. 14 no. 4
Type: Research Article
ISSN: 1526-5943

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Article
Publication date: 11 October 2021

Julian Benavides Franco, Julio César Alonso Cifuentes, Jaime Andrés Carabalí Mosquera and Anibal Sosa

The Colombian Government proposed a reverse mortgage mechanism to complement retirement income in Colombia. This paper aims to study its feasibility by valuing its premia.

Abstract

Purpose

The Colombian Government proposed a reverse mortgage mechanism to complement retirement income in Colombia. This paper aims to study its feasibility by valuing its premia.

Design/methodology/approach

Under a reverse mortgage scheme, banks issue put options on an owner’s home. To value the option, the authors apply a risk-neutral canonical approach modeling its three sources of risk: home future value, interest rate levels and homeowner life expectancy.

Findings

In all, premia values do not seem too high. However, if future interest rates are above the simulations or home appreciation is below its historical behavior, the premia could sharply increase, jeopardizing the system viability. Limiting the loan-to-home-value ratio or fixed-term annuities are feasible alternatives to keep premium increases at bay. Complementary mechanisms may also help.

Research limitations/implications

The home price and interest rate path estimation do not include inflation dynamics; in recent years inflation level was very low. However, the future does not offer any warrants. Future research also should cap the maximum loss the bank can endure. The pandemic may cause demographic changes affecting the viability of the reverse mortgage (R.M.) program in Colombia.

Practical implications

Based on the analysis, this work suggests possible government policies to help creditors and to maintain bank risks at a reasonable level.

Social implications

An adequate reverse mortgage program may help the policymakers in Colombia to face the adverse environment for Colombia’s housing market and the pressure of its pension system. A good R.M. program generates incentives to purchase homes, given the possibility of receiving an additional rent after retirement.

Originality/value

The paper develops an econometrical improvement over previous work. The authors present a time-series analysis that includes stationarity and co-integration information to model the data-generation process of house prices and interest rates in a multivariate fashion. The authors also improve the valuation formula. Moreover, the paper presents a novel application to Colombia. The authors obtain our demographic data from the United Nations Population Division applying the Lee-Carter method to model mortality rates, which provides ample possibilities to extend reverse mortgage assessment to additional. Finally, this is the first scholarly effort to evaluate the R.M. for the Colombian case.

Details

International Journal of Housing Markets and Analysis, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1753-8270

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Article
Publication date: 30 September 2014

Martin C. Seay, Andrew T. Carswell, Melissa Wilmarth and Lloyd G. Zimmerman

The purpose of this research was to explore the growth of Home Equity Conversion Mortgage (HECM) fraud and the role of housing counselors in its identification and…

Abstract

Purpose

The purpose of this research was to explore the growth of Home Equity Conversion Mortgage (HECM) fraud and the role of housing counselors in its identification and prevention. HECMs are the Federal Housing Administration endorsed version of a reverse mortgage and represent the majority of reverse mortgages on the market.

Design/methodology/approach

To investigate HECM counselor’s training, and their ability to detect fraudulent activity, a survey was constructed and distributed nationwide using HUD’s publicly available roster of qualified agencies and counselors. The survey consisted of three main sections agency and respondent information including HECM certification process, typical interactions with clients, and mortgage fraud and HECM fraud.

Findings

Responses indicate that HECM counselors have limited awareness of and training in identifying fraudulent activities.

Originality/value

The case is made that additional training is needed to raise awareness among counselors so that they might better serve their clients. Given the sizable population that may legitimately need HECMs, it is important to improve awareness and provide training to detect fraudulent schemes and prevent this type of deception from occurring.

Details

Journal of Financial Crime, vol. 21 no. 4
Type: Research Article
ISSN: 1359-0790

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Article
Publication date: 19 February 2018

Abhishek Nirwan and Shweta Jaiswal Thakur

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Abstract

Details

Property Management, vol. 36 no. 1
Type: Research Article
ISSN: 0263-7472

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Abstract

Details

The Savvy Investor's Guide to Building Wealth Through Traditional Investments
Type: Book
ISBN: 978-1-83909-608-2

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Article
Publication date: 10 August 2020

David Bogataj, Valerija Rogelj, Marija Bogataj and Eneja Drobež

The purpose of this study is to develop new type of reverse mortgage contract. How to provide adequate services and housing for an increasing number of people that are…

Abstract

Purpose

The purpose of this study is to develop new type of reverse mortgage contract. How to provide adequate services and housing for an increasing number of people that are dependent on the help of others is a crucial question in the European Union (EU). The housing stock in Europe is not fit to support a shift from institutional care to the home-based independent living. Some 90% of houses in the UK and 70%–80% in Germany are not adequately built, as they contain accessibility barriers for people with emerging functional impairments. The available reverse mortgage contracts do not allow for relocation to their own adapted facilities. How to finance the adaptation from housing equity is discussed.

Design/methodology/approach

The authors have extended the existing loan reverse mortgage model. Actuarial methods based on the equivalence of the actuarial present values and the multiple decrement approach are used to evaluate premiums for flexible longevity and lifetime long-term care (LTC) insurance for financing adequate facilities.

Findings

The adequate, age-friendly housing provision that is appropriate to support the independence and autonomy of seniors with declining functional capacities can lower the cost of health care and improve the well-being of older adults. For financing the development of this kind of facilities for seniors, the authors developed the reverse mortgage scheme with embedded longevity and LTC insurance as a possible financial instrument for better LTC services and housing with care in assisted-living facilities. This kind of facilities should be available for the rapid growth of older cohorts.

Research limitations/implications

The numerical example is based on rather crude numbers, because of lack of data, as the developed reverse mortgage product with LTC insurance is a novelty. Intensity of care and probabilities of care in certain category of care will change after the introduction of this product.

Practical implications

The model results indicate that it is possible to successfully tie an insurance product to the insured and not to the object.

Social implications

The introduction of this insurance option will allow many older adult with low pension benefits and a substantial home equity to safely opt for a reverse mortgage and benefit from better social care.

Originality/value

While currently available reverse mortgage contracts lapse when the homeowner moves to assisted-living facilities in any EU Member State, in the paper a new method is developed where multiple adjustments of housing to the functional capacities with relocation is possible, under the same insurance and reverse mortgage contract. The case of Slovenia is presented as a numerical example. These insurance products, as a novelty, are portable, so the homeowner can move in own specialised housing unit in assisted-living facilities and keep the existing reverse mortgage contract with no additional costs, which is not possible in the current insurance products. With some small modifications, the method is useful for any EU Member State.

Details

Facilities, vol. 38 no. 9/10
Type: Research Article
ISSN: 0263-2772

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Article
Publication date: 15 August 2019

Wei Han and Yushi Jiang

The purpose of this paper is to empirically analyze the investment and pension functions of housing reverse mortgages (HRM) with redemption option and raise the…

Abstract

Purpose

The purpose of this paper is to empirically analyze the investment and pension functions of housing reverse mortgages (HRM) with redemption option and raise the participation initiative of the Chinese elderly for the HRM model and enhance their cognition of this financial product.

Design/methodology/approach

Based on the perspective of the financial decisions of the elderly, this study designs an analysis model of the economic validity of HRM, and takes Shanghai (a pilot city for HRM loans in China) as an example, using data from the Shanghai real-estate index and market interest rates from January 1998 to December 2018, as well as the contract data of HRM, for empirical analysis.

Findings

The results show that the HRM with redemption option has the characteristics of European call option and can obtain the value of implicit option from the perspective of the elderly. Considering the present value of the accumulated pension income, the present value of the redemption option and the present value of the final housing value, the elderly can obtain investment income from HRM with redemption option. Therefore, for Chinese seniors, the HRM with redemption option has economic validity.

Research limitations/implications

From the perspective of the demand of the elderly, participation in the HRM with redemption option can increase the life expectancy annuity for various pension expenditures and improve economic status while meeting the demand of inheritance motivation.

Practical implications

This study helps to clarify the financial decision-making process for elderly people who participate in HRM. On the one hand, it helps policy makers to optimize the implementation mode of HRM and promote the healthy and rapid development of HRM; on the other hand, it is conducive to raising the awareness of Chinese elderly people on this financial products and enhancing their enthusiasm for participating in HRM.

Originality/value

Few studies have directly analyzed the financial decision process of the HRM model from the perspective of the demand of the elderly. This study enriches the research viewpoint and method of HRM and accumulates data about the Chinese experience with HRM.

Details

China Finance Review International, vol. 9 no. 4
Type: Research Article
ISSN: 2044-1398

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Article
Publication date: 1 December 2002

Marsha J. Courchane and Judith A. Giles

As financial markets move toward increased globalization, it becomes worth considering whether inherent differences in financial markets across different countries will…

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Abstract

As financial markets move toward increased globalization, it becomes worth considering whether inherent differences in financial markets across different countries will diminish. For two countries more similar than different in terms of geography, location, government and culture, Canada and the USA remain strikingly different in terms of housing finance. Public policy objectives toward housing followed quite different paths over the past 70 years and fundamental differences in banking practices have led to considerably different outcomes in terms of mortgage finance instruments in the two countries. Examines some of the differences in policy and in competitive practices between Canada and the USA in an attempt to illuminate why differences in rates and terms across the two countries still exist. While a part of the difference remains due to legal constraints concerning the finance of the domestic housing sector, focuses on the economics and public policy choices that have led to the observed differences rather than on an analysis of the legal structure.

Details

Property Management, vol. 20 no. 5
Type: Research Article
ISSN: 0263-7472

Keywords

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