Integrating housing wealth into the social safety net : the elderly in Moscow

The elderly in Russia have often been among those least able to cope with all the changes that have taken place during the transition. Unlike the situation prior to reform-when pensions were stable-they now face considerable uncertainty. If they have not been in poverty, many have been close to it. While the elderly have experienced difficulties, they have also been the beneficiaries of a very large transfer of wealth. In Russia, as in most transition economies, housing was privatized, under giveaway terms. As a result, although many elderly households have low incomes, based on their wealth, their deprivation would appear to be less serious. Unfortunately, in the absence of a developed financial system, it is difficult to use this wealth without selling it. In Russia, all households, not just the elderly, have not been able to borrow. The existence of such large unencumbered wealth holdings by lower income elderly households creates an opportunity to provide what might be termed"housing safety net insurance"at low public cost. More than reducing the incidence of poverty, such schemes could allow also many of the elderly to be able to move out of poverty and into middle income status. The authors explain why many of the elderly in the former Soviet Union (FSU), not just in Russia, are likely to have so much housing wealth. Then they discuss how financial instruments could access this wealth. The authors also discuss the empirical situation of the elderly in Moscow, illustrating the potential demand for such products. Finally, they suggest that the results for Moscow are likely to be similar in many other FSU countries because these countries also have elderly populations who also own a great deal of unencumbered housing wealth.Environmental Economics&Policies,Public Health Promotion,Payment Systems&Infrastructure,Banks&Banking Reform,Health Economics&Finance,Health Monitoring&Evaluation,Banks&Banking Reform,Environmental Economics&Policies,Economic Theory&Research,Health Economics&Finance

Risk and the Home Equity Conversion Mortgage

This article analyzes the risks involved with reverse mortgage insurance and explains the pricing model developed for the Home Equity Conversion Mortgage (HECM) demonstration. The paper demonstrates how borrower longevity, interest rates and property value changes all affect pricing, and why the HECM model focuses on property value as the primary source of uncertainty. It goes on to explain why a random walk specification was chosen to forecast property values, and how the principal limit factors, which determine cash payments to borrowers in the HECM program, are calculated. Copyright American Real Estate and Urban Economics Association.