Nobel Laureate Calls for Global Improvement of Reverse Mortgages

The need for alternative funding sources isn’t only an American retirement imperative, but a global necessity for aging adults who can benefit from using housing wealth to support their longevity, according to one Nobel laureate in Economics.

In a keynote address this month, Dr. Robert C. Merton, distinguished professor of finance at the MIT Sloan School of Management and 1997 Nobel Laureate in Economics, spoke at the the 2016 Retirement Investing Conference in Oxford, England, sponsored by the Journal of Investment Management (JOIM), Oxford University and the EDHEC Risk Institute.

During his speech, Merton encouraged conference participants hailing from the United Kingdom, Asia, South Africa, Australia, Europe and the United States, to engage in product innovation for both annuities and housing wealth as part of a global effort to improve retirement income security throughout the world.


As life expectancies across the globe increase, the conventional retirement planning methods, such as saving more and taking more investment risk, will no longer be scalable solutions to fund longevity.

But while it is difficult to influence savings behavior, Merton asserted that housing wealth could be easily used as an “accumulated asset” for most retirees. In conjunction with a well-designed annuity, he suggested that housing could function in tandem to create a stream of income for life.

Acknowledging that reverse mortgages have an unfortunate reputation in the U.S., Merton mentioned that alternative product names like “equity release” and “home pension” might help improve uptake among consumers.

Shelley Giordano, chair of the Funding Longevity Task Force, was among the attendees at the JOIM event this month. While in the U.K., she met with Nigel Waterson, M.P., of the Equity Release Council, a London-based organization that represents providers, qualified financial advisers, lawyers, intermediaries and surveyors who work in the equity release sector.

“It is exciting to see housing wealth top of mind with leaders throughout the world,” Giordano said. “I was surprised to learn that equity release in the U.K. is originated by financial advisors, given the lack of cooperation with the financial planning community we see in the U.S.”

The JOIM event wasn’t the first time Merton espouses the potential benefits of using housing wealth, particularly reverse mortgages, as part of a much-needed solution for funding retirement.

Last October, the Nobel laureate highlighted the promising future of reverse mortgages during a keynote address delivered at a national conference hosted by BAM Advisor Services in St. Louis.

Written by Jason Oliva

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  • It is surprising to read Shelley say: “…given the lack of cooperation with the financial planning community we see in the U.S.” I expect statements about the lack of cooperation in the US with the financial planning community but not from Shelley. This shows a far deeper pessimism than previously seen in her comments.

    However, it is not surprising at all to see other countries doing things differently. Please name another country where the overwhelming number of reverse mortgages originated each month are insured and backed by the federal government of that country.

    • George, your pessimism is duly noted. But the overreaching theme of using home equity to fund retirement appears to be gaining traction in the world-wide lexicon, comparatively speaking to the last decade… as it should for those of us open to spotting progression. Not a dispositive sign of traction, but a sign of life.

      The fact that you note the ‘deeper pessimism’ of Shelley’s observation speaks more to your obsessive ongoing agenda thematic to your comments than it does to the article itself. (Everyone get’s it.. the Cynic told us so derp derp) Thematic pessimism doesn’t mean incorrect; it sure as hell doesn’t make it correct though.

      Plenty of people disagree with you (as you seem to enjoy so much yourself with the “yeah, but” tone of your comments. Seriously, you should start every post with, “Yeah, but…” your inappropriately toned comments have become so obligatory we might as well have some fun 🙂

      Taken as a big picture view, this is a good thing to read about. I don’t (yet) care about whether or not other countries have an FHA-ish HECM-like quasi legislative initiative deployed. Let’s crawl before we walk, and this discussion on a global level is a pretty clear ‘baby step’ forward. Hell, let’s call it crawl… I’ll even roll with stumble… but it appears to demonstrate movement in the world-wide psyche nonetheless; and that’s better than stagnation

      Your turn, George. I’ll get you started:

      “Yeah, but…” 😉

      • silversurfer,

        Your reply seems more a defensive strike out of fear of your far too optimistic attitude about fiscal year 2016 endorsements than much else. We, realists, are not afraid to be wrong; for us it is just another opportunity to learn from. You seem to dread it!

        So to help kill your dread, in less than a week HUD will announce the endorsement count for this fiscal year. (Warning–Spoiler alert), endorsements for fiscal year 2016 will be the worst year for endorsements in over a decade. They are expected to come in at less than 50,000 endorsements. The originators (which you are not) in the industry predicted a minimum 10% loss in endorsements (with most coming in around 15%) for this fiscal year. Yes, the originators seem to have hit the nail on the head, understanding the outcome for implementing financial assessment much better than industry leaders and their far too optimistic estimates.

        Pessimists and optimists in this industry are a lot a like. Each year pessimists declare how the last downturn in endorsements is pointing to the end of the industry. Optimists have assured us year-by-year that since the start of fiscal 2011 how that the last down fiscal year for endorsements was the bottom of the current HECM endorsement cycle. Realists declare that they are not sure if this is the bottom but declare that this fiscal year is not the fiscal year we will return to 100,000 endorsements or the fiscal year the industry will fold.

        Realists will say that there are no significant signs of recovery when there are none and that there are such signs when they can be seen in the data HUD provides. Pessimists and optimists ignore whether or not there are any significant signs of recovery, with the optimists declaring that they see them and with the pessimists declaring that all they see is the end of the industry.

        Sometimes the optimists side with the pessimists saying such things as: “Congress is ready to end the program and this is what we must do to keep the industry going.” Unless in the extreme, pessimists rarely side with optimists in declaring how they see the industry growing and doing better. Optimists and pessimists run on emotional appeals and ignore facts. Cynics do not trust the motives of either group; here cynics come close to being realists.

        Realists on the one hand analyze information. We are less prone to see the future of the industry through our emotions WHEN there is sufficient, relevant, reliable, and verifiable information. We are sometimes surprised when experts like Shelley declare how working with US financial advisors is difficult. Optimists and pessimists tells how they are surprised by little.

        You see realists actually listen, observe, and learn. Optimists and pessimists educate and criticize calling opposing views “derp!” They are generally afraid of being caught learning more than the minimum after college. Realists believe that others, especially optimists and pessimists, will rarely agree with them. But as you show in your comment, the tone of the two, even optimists, is rarely one of tolerance. Even “lowly” cynics are somewhat more tolerant.

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