The Influence of Family and Community Ties on the Demand for Home Equity Conversion Mortgages

Abstract

Reverse mortgages are loans against home equity that do not have to be repaid until the borrower moves, sells the home, or dies. The loans generally are available only to older homeowners, usually aged 62 or over. This paper explores whether demand for reverse mortgages is influenced by the strength of area’s family and community ties. One type of reverse mortgage is analyzed: the FHA-insured Home Equity Conversion Mortgage (HECM). Several researchers have estimated the potential demand for reverse mortgages. To my knowledge, this is the first study of how actual demand may be determined, and of how it may be related to potential demand. The unit of analysis is a county in one of 26 selected metropolitan areas in the United States. The primary measures of the strength of a county’s family and community ties are those relating to the out-migration of young and old residents. Other variables used to measure family ties include the degree of religious adherence in the county and the percent of its residents that were born in that state. Race and educational achievement are also used in the analysis. Differences in the market development of HECMs across counties are accounted for by including measures of HECM counselors and lenders that are active in each area. Data from a variety of sources are used. The data are analyzed by method of ordinary least squares and two-stage least squares regressions. Fairly strong evidence that family and community ties do influence demand for HECMs is found. A higher incidence of young out-migration, reflecting weak family and community ties of the young, tends to increase demand for reverse mortgages. The opposite is found for old out-migration, which implies that when the old are not attached to their communities, they will be less interested in reverse mortgages. The percent of persons born in the same state as their current residence is found to negatively influence demand. Racial composition, educational achievement, and the extent of market development in an area also are found to influence demand for reverse mortgages