Reverse Mortgage Products for the Indian Market: An Exploration of Issues

Rajagopalan, R (2005) Reverse Mortgage Products for the Indian Market: An Exploration of Issues. TAPMI, Manipal.

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Abstract

This paper explores the prospects for reverse mortgage (RM) products in India. Developed countries are faced with severe budgetary constraints in sustaining their current universal and liberal old age social and income security (OASIS) programmes. Developing countries are slated to face acute problems in meeting the OASIS needs of their projected population of the elderly. These budgetary constraints and increasing expectations on quality of life amongst the elderly would fuel a massive demand for financial products tailored to the elderly- for safe investment avenues, systematic liquidation of assets to finance consumption, managing longevity and inflation risks and imparting liquidity to illiquid assets. RM encompasses a range of non-recourse mortgage loans, which help a borrower get liquid funds against his home equity, without having to move out or having to make any repayments, till he dies or sells the house or moves out. Since bulk of the savings at retirement is typically locked in home equity, RM is a powerful device to increase the incomes of the elderly. RM has been in existence in Europe for several centuries but in highly localized and personalized contexts. The modern version of the RM was introduced in U.S with the support of the Federal Government in late 1980s. Literature on RM is unanimous on its huge market potential. However, its complexity exposes a lender to several risks: mortality, interest rates and real estate markets. It is an unusual product for a typical elderly borrower, creating fears of debt burden, eviction and inability to bequeath property. Legal, taxation and other regulatory uncertainties still persist. The actual volume of RM loans in U.S is only moderate. RM products have been recently introduced in Europe and Singapore. The actual U.S experience so far, under both federally insured and proprietary RM, has been reasonably good. Demographic projections indicate that RM could have reasonable prospects in India, to begin with in urban areas of Kerala, Tamil Nadu, Goa, Chandigarh and possibly all metros. There are however no solid secondary data relevant to RM available. These include mortality amongst the elderly, current home ownership amongst the elderly, trends in appreciation in home value and long term interest rates. In spite of the above, we recommend further RM specific research to enable design of RM products suited to Indian conditions. Location specific assessment of market potential, documentation of legal and regulatory issues and real estate markets would be necessary.

Item Type:	TAPMI Working Papers
Uncontrolled Keywords:	Reverse Mortgage; Indian Market; Finance
Subjects:	Finance
Divisions:	Operations and Information Science
Depositing User:	Ms. Vanitha K
Date Deposited:	17 Nov 2018 05:04
Last Modified:	21 Nov 2018 05:49
URI:	http://tapmi.informaticsglobal.com/id/eprint/364

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