Fed/GFLEC Financial Literacy Seminar Series

May 8, 2014

3:00 pm - 4:30 pm

Seminar V:

An Analysis of Default Risk in the Home Equity Conversion Mortgage (HECM) Program

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Stephanie Moulton

Associate Professor at the John Glenn School of Public Affairs
Ohio State University


FinLit Talks: Interviews with Financial Literacy Thought Leaders

LOCATION

George Washington University School of Business
Duquès Hall, Room 651
2201 G Street NW (main entrance on 22nd Street between G and H Streets)
Metro: Foggy Bottom Station

Bio: Stephanie Moulton

Stephanie Moulton is an Associate Professor at the John Glenn School of Public Affairs, The Ohio State University. She is also a research affiliate with the University of Wisconsin’s Center for Financial Security. Moulton specializes in housing and consumer finance policies and programs implemented by federal, state, and nonprofit organizations, with a focus on vulnerable populations. Moulton is currently studying consumer decision making regarding mortgages and the role of public policy and program interventions to improve mortgage outcomes. She is currently the principal investigator on a multi-phase analysis of the financial decision making of seniors considering reverse mortgages, with funding from the MacArthur Foundation and the U.S. Department of Housing and Urban Development. She also studies homeownership programs administered by state housing finance agencies, including first-time homebuyer programs financed by mortgage revenue bonds (MRBs), and the Hardest Hit Fund (HHF) foreclosure prevention initiative, with funding from the MacArthur Foundation. Moulton’s research has been published in top journals, such as the Journal of Money, Credit & Banking, the Journal of Consumer Affairs, Housing Policy Debate, and the Journal of Public Administration Research and Theory. Prior to her academic career, Moulton worked in the nonprofit sector, designing and managing asset building, homeownership, and community development programs at the local and state levels. Moulton received her Ph.D. in Public Affairs from the School of Public and Environmental Affairs at Indiana University.


 

Abstract

An Analysis of Default Risk in the Home Equity Conversion Mortgage (HECM) Program

Stephanie Moulton, Don Haurin, and Wei Shi

While reverse mortgages are intended as a tool to enable financial security for older homeowners, the nearly 10 percent default rate on property taxes and homeowners insurance among borrowers in the Federally insured Home Equity Conversion Mortgage (HECM) program raises significant concerns. A variety of policy responses have been put into effect, including establishing financial assessment criteria (underwriting guidelines) for the first time in the program’s history. However, there is a lack of data and analysis to inform these criteria. Our analysis directly informs this policy need, with a unique data set of more than 30,000 seniors counseled for reverse mortgages between 2006 and 2011, 58 percent of whom took out HECM loans. Our data includes comprehensive financial and credit report attributes not typically available in analyses of reverse mortgage borrowers, in addition to loan data on originations, withdraws, and termination outcomes. Using a truncated bivariate probit model, we estimate the likelihood of tax and insurance default, conditioned on selection of an HECM loan. We identify the factors that contribute to default risk and then conduct a series of simulations to evaluate the recently enacted HECM program changes.


 

FinLit Talks

An Analysis of Default Risk in the Home Equity Conversion Mortgage (HECM) Program

4:17, Stephanie Moulton, Ohio State University

Financial Literacy Among Graduate Students

4:54, David Richardson, TIAA-CREF

Lapse-Based Insurance

5:44, Daniel Gottlieb, Wharton School, University of Pennsylvania

Financial Education and Account Access among Elementary Students

6:45, Kasey Wiedrich, Applied Research Corporation for Enterprise Development (CFED)

Inattention and Inertia in Household Finance

8:12, John Campbell, Harvard University