2/07

Paper Abstract

          This project investigates bargaining defects minority seniors face in contracting for a reverse mortgage, a loan product exclusively for senior citizens with substantial home equity. Generally the loan does not become payable until the senior citizen dies or transfers the home, in either case the proceeds of the home sale are used to pay off the loan. The amount that a senior can borrow under a reverse mortgage depends on several variables, including the interest rate, the age of the senior, and the value of the home. For instance, older seniors (all else equal) will be able to borrow more under the typical loan product. I argue that this loan product will have interesting and different benefits and costs depending on whether the senior is a minority homeowner, since such homeowners have less income and less home equity, characteristics that lenders today either ignore or fail to fully appreciate when negotiating the terms of these agreements.  This would be significant because reverse mortgages are frequently touted as a good solution for seniors to supplement their retirement income.