Moral Hazard in Home Equity Conversion / Robert J. Shiller, Allan N. Weiss.

By:

Shiller, Robert J

Contributor(s):

Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w6552.Publication details: Cambridge, Mass. National Bureau of Economic Research 1998.Description: 1 online resource: illustrations (black and white)Subject(s):

G21 - Banks • Depository Institutions • Micro Finance Institutions • Mortgages

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Abstract: Home equity conversion as presently constituted or proposed usually does not deal well with the potential problem of moral hazard. Once home-owners know that the risk of poor market performance of their homes is borne by investors, they have an incentive to neglect to take steps to maintain the homes' values. They may thus create serious future losses for the investors. A calibrated model for assessing this moral hazard risk is presented that is suitable for a number of home equity conversion forms: 1) reverse mortgages, 2) home equity insurance, 3) shared appreciation mortgages, 4) housing partnerships, 5) shared equity mortgages and 6) sale of remainder interest. Modifications of these forms involving real estate price indices are proposed that might deal better with the problem of moral hazard.

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Holdings
Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w6552 (Browse shelf(Opens below))	Not For Loan

Total holds: 0

May 1998.

Home equity conversion as presently constituted or proposed usually does not deal well with the potential problem of moral hazard. Once home-owners know that the risk of poor market performance of their homes is borne by investors, they have an incentive to neglect to take steps to maintain the homes' values. They may thus create serious future losses for the investors. A calibrated model for assessing this moral hazard risk is presented that is suitable for a number of home equity conversion forms: 1) reverse mortgages, 2) home equity insurance, 3) shared appreciation mortgages, 4) housing partnerships, 5) shared equity mortgages and 6) sale of remainder interest. Modifications of these forms involving real estate price indices are proposed that might deal better with the problem of moral hazard.