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How federally insured reverse mortgages affect the credit outcomes of older adults
Author(s) -
Moulton Stephanie,
Haurin Donald,
Dodini Samuel,
Schmeiser Maximilian D.
Publication year - 2020
Publication title -
journal of consumer affairs
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.582
H-Index - 62
eISSN - 1745-6606
pISSN - 0022-0078
DOI - 10.1111/joca.12331
Subject(s) - home equity , bankruptcy , debt , credit card , equity (law) , business , panel data , credit score , credit history , actuarial science , economics , financial system , finance , econometrics , political science , law , payment
This study examines how the extraction of home equity through the federally insured Home Equity Conversion Mortgage (HECM) affects the credit outcomes of older adults. We use data from the Federal Reserve Bank of New York/Equifax Consumer Credit Panel, supplemented with a unique credit panel data set of reverse mortgage borrowers. Using matched sample difference‐in‐differences with individual fixed effects, we estimate credit outcomes for older adults who borrowed through a HECM between 2008 and 2011, relative to older homeowners not borrowing from home equity. Our results indicate that the HECM is associated with a short‐term reduction in revolving credit card debt, as well as a reduction in the probability of bankruptcy. We find some evidence of heterogeneous treatment effects, where older adults with higher levels of consumer debt prior to originating a HECM experience larger subsequent declines in debt, increases in credit score, and steeper reductions in bankruptcy rates.