Reverse Mortgages, Financial Inclusion, and Economic Development: Potential Benefit and Risks [book]

Peter Knaack, Margaret Miller, Fiona Stewart
2020 Policy Research Working Papers   unpublished
The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. This paper examines the state of reverse mortgage markets in selected countries around the world and considers the potential benefits and risks of these
more » ... cts from a financial inclusion and economic benefit standpoint. Despite potentially increasing demand from aging societies-combined with limited pension income-a series of market failures constrain supply and demand. The paper discusses a series of market failures on the supply side, such as adverse selection, moral hazard, and the costly regulation established to address these problems, leading to only a small number of providers, even in developed markets. Demand-side constraints are equally relevant, in particular high non-interest costs, abuse concerns, and the inability of reverse mortgages to cover key risks facing the elderly, particularly health and elder care. In developing countries, constraints are likely to be even higher than in advanced economies, due to high transaction costs and lack of consumer knowledge and protection. The enabling conditions for such markets to develop are outlined, along with examples of regulatory oversight. The paper concludes that these still seem to be largely products of last resort rather than well-considered purchases as part of good retirement planning.
doi:10.1596/1813-9450-9134 fatcat:ogdiyau35nf3rpgq57sg67e3q4