TY  - JOUR
AU  - Shiller,Robert J.
AU  - Weiss,Allan N.
TI  - Moral Hazard in Home Equity Conversion
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 6552
PY  - 1998
Y2  - May 1998
UR  - http://www.nber.org/papers/w6552
L1  - http://www.nber.org/papers/w6552.pdf
N1  - Author contact info:
Robert J. Shiller
Yale University, Cowles Foundation
Box 208281
30 Hillhouse Avenue
New Haven, CT  06520-8281
Tel: 203/432-3708
Fax: 203/432-6167
E-Mail: robert.shiller@yale.edu
AB  - Home equity conversion as presently constituted or proposed usually does not deal well with the potential problem of moral hazard.  Once home-owners know that the risk of poor market performance of their homes is borne by investors, they have an incentive to neglect to take steps to maintain the homes' values. They may thus create serious future losses for the investors.  A calibrated model for assessing this moral hazard risk is presented that is suitable for a number of home equity conversion forms: 1) reverse mortgages, 2) home equity insurance, 3) shared appreciation mortgages, 4) housing partnerships, 5) shared equity mortgages and 6) sale of remainder interest.  Modifications of these forms involving real estate price indices are proposed that might deal better with the problem of moral hazard.
ER  -