The Department of Economics Macroeconomics Seminar Series presents
"Reverse Mortgage Loans: A Quantitative Analysis"
with Irina Telyukova, Assistant Professor of Economics, UC Davis
Wednesday, April 24, 2013
Social Science Plaza B, Room 3218
Reverse mortgages allow elderly homeowners with limited income or financial wealth
to borrow against their housing wealth without downsizing or moving out and becoming
a renter. Although the proportion of eligible older homeowners using reverse mortgages
has been increasing rapidly, that proportion is only 1.4 percent at present. In this
talk, Telyukova analyzes reverse mortgage loans in a rich structural life-cycle model
of retirement. Our model can replicate the low take-up rate with a reasonable calibration.
When the model is calibrated to match the observed take-up rate, the welfare gain
from introducing reverse mortgages is sizable at $510 per household in the economy.
Telyukova's model indicates that one-third of reverse mortgage borrowers use them
for medical expenses, while remaining in their home. Through counter-factual experiments,
she identifies that, conditional on the existing RML contracts, bequest motives, moving
shocks, and house price fluctuations all contribute to the observed low take-up rate,
and that if households expect a housing boom, reverse mortgage demand increases, consistent
with the data. However, the interest and insurance costs of reverse mortgages are
important determinants of demand as well. Finally, the addition of the HECM Saver,
a recently-introduced reverse mortgage contract with lower upfront costs designed
to boost demand for reverse mortgages, fails to create
For further information, please contact Gloria Simpson, firstname.lastname@example.org or 949-824-5788.