How Home Equity Extraction and Reverse Mortgages Affect the Credit Outcomes of Senior Households PDF Download
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Author: Stephanie Moulton
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Languages : en
Pages : 0
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This paper examines how the extraction of home equity, including but not limited to equity extracted through reverse mortgages, affects credit outcomes of senior households. We use data from the Federal Reserve Bank of New York/Equifax Consumer Credit Panel, supplemented with our unique credit panel dataset of reverse mortgage borrowers. We track credit outcomes for seniors who extracted equity through cash-out refinancing, home equity lines of credit or home equity loans between 2008 and 2011, and a random sample of nonextractors. We estimate differences-in-differences by extraction channel using individual, fixed-effects panel regression. We find that seniors extracting equity through reverse mortgages have greater reductions in consumer debt, and are less likely to become delinquent or foreclose three years post origination relative to other extractors and nonextractors. These effects are greater among households who experienced a credit shock within the two years prior to loan origination. To help isolate the effect of the extraction channel on credit outcomes, we re-estimate our models with a matched sample of consumers at the time of extraction. We find that otherwise similar HECM borrowers have larger reductions in credit card debt post-extraction than other equity borrowers and non-borrowers, with no significant difference in the rates of delinquency on non-housing debt post extraction. For HECM borrowers, we find that increased initial withdrawal and increased monthly cash flow contribute to the reduction in credit card debt.
Author: Stephanie Moulton
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
This paper examines how the extraction of home equity, including but not limited to equity extracted through reverse mortgages, affects credit outcomes of senior households. We use data from the Federal Reserve Bank of New York/Equifax Consumer Credit Panel, supplemented with our unique credit panel dataset of reverse mortgage borrowers. We track credit outcomes for seniors who extracted equity through cash-out refinancing, home equity lines of credit or home equity loans between 2008 and 2011, and a random sample of nonextractors. We estimate differences-in-differences by extraction channel using individual, fixed-effects panel regression. We find that seniors extracting equity through reverse mortgages have greater reductions in consumer debt, and are less likely to become delinquent or foreclose three years post origination relative to other extractors and nonextractors. These effects are greater among households who experienced a credit shock within the two years prior to loan origination. To help isolate the effect of the extraction channel on credit outcomes, we re-estimate our models with a matched sample of consumers at the time of extraction. We find that otherwise similar HECM borrowers have larger reductions in credit card debt post-extraction than other equity borrowers and non-borrowers, with no significant difference in the rates of delinquency on non-housing debt post extraction. For HECM borrowers, we find that increased initial withdrawal and increased monthly cash flow contribute to the reduction in credit card debt.
Author: Stephanie Moulton
Publisher:
ISBN:
Category :
Languages : en
Pages : 35
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Households borrow against home equity through different types of mortgages: closed end home equity loans or revolving lines of credit, cash-out refinancing, and--for senior homeowners--reverse mortgages. The objective of this study is to identify how borrowing constraints and the lending environment affect the rate of seniors' home equity borrowing and their choice of mortgage product. Ours is the first study to model the choice of reverse mortgages alongside other modes of equity borrowing. During the house price boom (2001-2007), we find that credit constrained areas display higher rates of home equity borrowing than less constrained areas as home equity levels increase for cash-out refinancing and reverse mortgages. During the recovery period (2010-2015), we observe this relationship only for reverse mortgage borrowing, consistent with tightened underwriting for forward mortgage loans.
Author: Donald R. Haurin
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Category :
Languages : en
Pages : 47
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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 E.U. and U.S. It explores the extent that seniors extract their home equity and discusses the financial instruments available for equity extraction. We use data from the E.U. and U.S. 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. We find that seniors' home equity is a substantial share of their total wealth. Estimates for 2013 are that their home equity equals about $5 trillion euros in the U.S. and over $8 trillion euros in large E.U. countries. We 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 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.
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Category :
Languages : en
Pages :
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Author: Makoto Nakajima
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Category : Home equity loans
Languages : en
Pages : 34
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The authors study empirically and theoretically the patterns of home equity withdrawal among retirees, using a model in which retirees are able to own or rent a home, save, and borrow against home equity, in the face of idiosyncratic risks concerning mortality, health, medical expenditures, and household size and observed house price changes. The estimated model is found to successfully replicate the patterns of homeownership and the saving/borrowing decisions of retirees. They use the estimated model for several counterfactual experiments. There are three main findings. First, the model predicts that a house price boom suppresses homeownership and increases borrowing, while a decline in house prices has the opposite effect. Second, the costs of home equity borrowing restrict the borrowing of retirees, and thus a reduction of such costs (e.g., lower costs of reverse mortgage loans) might significantly raise home equity borrowing. Third, there are two implications for the retirement saving puzzle. Although the cost of borrowing against equity in the house affects the borrowing of retirees, it does not affect total asset holding, implying that equity borrowing costs do not seem to offer a quantitatively significant contribution to resolving the retirement saving puzzle. On the other hand, the magnitude of the retirement saving puzzle might be exaggerated, because a sizable part of "retirement saving" is due to house price appreciation.
Author: Mary H. Parker
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Category : Equity
Languages : en
Pages : 24
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Category : Aged
Languages : en
Pages : 104
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Category : Aged
Languages : en
Pages : 100
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Author: Tom Kelly
Publisher:
ISBN: 9780786286973
Category : Business & Economics
Languages : en
Pages : 548
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Learn how seniors can stay in their home with no mortgage payments.
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Category : Home equity conversion
Languages : en
Pages : 28
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