Page 399 - 2019 6th AFIS & ASMMA

changes. What I mean by that is the very existence of reverse mortgage
may have an effect on house price dynamics, although it may not have
a direct effect on demographic changes. But in order to have reverse
mortgage that reflects the macro economy in a more appropriate way,
you have to indigenize house price dynamics and reflect feedback on
effects of the reverse mortgage on the house price dynamics.

Also, you have to improve efficiency by smoothing housing
consumption. Like I said, smoothing other goods and services
consumption is good, but you also have to smooth housing consumption
by, for example, allowing the adjustment of homes in some way. In
addition, you have to devise an optimal level of government subsidy to
everyone's benefit. So that's why the government subsidized this program
to begin with.
The last point I'd like to make is that reverse mortgage has to work Session III
with forward mortgage. Homeowners put all their wealth in equity of
their own homes, so in a portfolio choice, there's no diversification. So
homeowners are having too much risk. It's kind of an odd fact in housing
finance; reverse mortgage should help reduce the risk, and it does help
reduce that risk, yet reverse mortgage assumes these homeowners have
a high level or full equity to begin with. So I thought, ‘what if houses are
purchased with some shared equity scheme?’ Then you wouldn’t have to
accumulate equity that much in the first place. Later on you know you can
liquefy on that equity, but you only need to accumulate less equity which is
less costly to own a home. Hence the equity you would have accumulated
can be freed up to fund a retirement plan. I am not sure if this feasible, but
these were my thoughts on the reverse mortgage. Thank you.

Other thoughts I had on the reverse mortgage is that it has to have a
lower transaction cost, obviously. Higher costs may be the main reason » Moderator | Richard K. Green
in some country why reverse mortgage did not catch up. Also, there Thank you very much. It's always good to have an economist
should be benefits from pooling, which reduces the individual risks. skepticism as part of a conversation. I'm going to come back to that in a
The benefits from pooling may not be big enough to cover all the costs, minute. I do want to put up this. This is not a question, it's a comment
and that’s where the government subsidy comes in. And we should be from a member of the audience, but I really like it. "It looks like the
aware that an excessively complicated scheme may end up benefitting adverse selection is an issue of the lender not the borrowers, when
middlemen only. the lender can decide whether to sell the loans to FHA." I thought that

400 2019 6th AFIS & ASMMA Annual Meeting 401