• Home Equity Conversion Mortgages
  • Volume 19, Number 1
  • Managing Editor: Mark D. Shroder
  • Associate Editor: Michelle P. Matuga
 

Reverse Mortgage Collateral: Undermaintenance or Overappraisal?

Kevin A. Park
U.S. Department of Housing and Urban Development


Opinions expressed in this article are those of the author and do not necessarily reflect the views and policies of the U.S. Department of Housing and Urban Development or the U.S. government.

Using information on mortgages insured by the Federal Housing Administration, this article examines the disproportionate decline in collateral values associated with reverse mortgages. Properties securing reverse mortgages sell at a sharp discount in foreclosure relative to similar properties securing forward purchase loans. This discount, however, does not increase over time as expected of depreciation related to property undermaintenance. Further, a similar discount is observed on forward refinance loans. An overestimate of the collateral value at origination, rather than subsequent level of property maintenance, may be responsible for greater-than-expected loss severities.


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