POTENTIAL BENEFICIARIES FROM REVERSE MORTGAGE PRODUCTS FOR ELDERLY HOMEOWNERS - AN ANALYSIS OF AMERICAN HOUSING SURVEY DATA

A variety of reverse mortgage loan programs have been available to eld erly households for over a decade. The number of unrestricted reverse mortgage loans issued by the private sector has been quite small. Abou t 12,000 loans have been issued through mid-1992. Some researchers tak e this to mean that the size of the potential market for reverse mortg ages is also quite small. Other researchers claim that current low lev els of activity reflect supply and demand problems, but that the poten tial market is in fact quite large. This paper uses American Housing S urvey (AHS) data to estimate the potential size of the market for unre stricted reverse mortgages. The 1989 national AHS shows that there are over twelve million elderly homeowners (age 62 and over) who own thei r homes free and clear. Depending on their income, age and the level o f home equity, the group of households most likely to benefit from rev erse annuity mortgages is considerably smaller. As one approach to def ining a lower bound of the estimate of potential beneficiaries from re verse mortgages, we count the number of homeowners in a prime group co nsisting of the older elderly, aged 70 or above, with an annual income of $30,000 or less, with home equity between $100,000 and $200,000, w ho have lived in their homes for over ten years. We estimate that ther e are about 800,000 elderly households in this prime group. For such h ouseholds, reverse mortgage payments could represent a substantial per centage increase in income; other definitions of target groups can als o be explored using the tables provided. The paper uses the 1985 throu gh 1988 AHS Standard Metropolitan Statistical Area (SMSA) surveys to i dentify areas that have a large number of elderly homeowners in the pr ime target group, and in which these homeowners represent a large frac tion of the elderly homeowner population. These locations are likely t argets for introduction of reverse mortgage products because any campa ign can be targeted towards a high concentration of likely eligible be neficiaries.