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Risk and the Home Equity Conversion Mortgage
Author(s) -
Szymanoski Edward J.
Publication year - 1994
Publication title -
real estate economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.064
H-Index - 61
eISSN - 1540-6229
pISSN - 1080-8620
DOI - 10.1111/1540-6229.00637
Subject(s) - home equity , equity (law) , economics , payment , shared appreciation mortgage , actuarial science , property value , value (mathematics) , interest rate , business , financial economics , mortgage insurance , monetary economics , finance , insurance policy , casualty insurance , real estate , machine learning , political science , computer science , law
This article analyzes the risks involved with reverse mortgage insurance and explains the pricing model developed for the Home Equity Conversion Mortgage (HECM) demonstration. The paper demonstrates how borrower longevity, interest rates and property value changes all affect pricing, and why the HECM model focuses on property value as the primary source of uncertainty. It goes on to explain why a random walk specification was chosen to forecast property values, and how the principal limit factors, which determine cash payments to borrowers in the HECM program, are calculated.