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Retirement Researchers Bring Reverse Mortgage Discussion to MIT

Reverse mortgages were the focal point of conversation at a recent gathering between several of the nation’s leading retirement researchers and finance policy experts at the Massachusetts Institute of Technology (MIT).

Earlier this month, members of the Funding Longevity Task Force at The American College of Financial Services joined distinguished MIT staff, as well as other housing experts, to discuss the importance of home equity and the role of reverse mortgages in retirement planning.

One of the attendees was MIT’s Sloan Distinguished Professor of Finance and Director of the MIT Golub Center for Finance and Policy Deborah Lucas, who recently published research demonstrating the relative value and cost of a reverse mortgage to borrowers, lenders and the federal government.

Unlike reverse mortgage research that has been published in recent years, which considers the scenario of an individual and how a reverse mortgage might benefit their particular situation, Lucas’ research analyzes reverse mortgages from a “purely financial” standpoint, said Jamie Hopkins, associate professor of retirement income and co-director of The American College New York Life Center for Retirement Income, during a conversation with RMD.

In doing so, Lucas sets out to determine if a reverse mortgage is a “good deal” for borrowers who use them, the lenders who offer them and the government that insures them.

“In a lot of ways, [Lucas’ research] does support the research that has been published on reverse mortgages,” Hopkins said, referring to the concept that a reverse mortgage is most effective when obtained early, rather than later, in retirement.

Lucas’ research is the most recent indication of MIT’s interest in the use of reverse mortgages as a retirement planning tool.

Earlier this year, the MIT Center of Finance and Policy published an article by Mark J. Warshawsky and Tatevik Zohrabyn titled “Retire on the House: The Use of Reverse Mortgages to Enhance Retirement Security.” The article provides a review of previous research that has been published on reverse mortgages, drawing from the findings of Task Force members such as Wade Pfau, John Salter and Barry Sacks.

Reverse mortgages even caught the attention of 1997 Nobel Laureate in Economics Dr. Robert C. Merton, who currently serves as distinguished professor of finance at MIT Sloan School of Management. Merton has been frequently cited as calling for a global need to improve equity release products, reverse mortgages included.

“MIT recognizes the importance of home equity in retirement planning and they also understand that reverse mortgages can be used in very good ways,” Hopkins said.

The Task Force, which has existed since 2012, formally joined The American College of Financial Servicers in September 2016. Now aligned with the Bryn Mawr, Pa.-based College, the goal of the Task Force continues to be focused on the advancement of an objective understanding of the role that housing wealth can play in retirement income planning.

“Our Task Force took as its mission an exploration of a rational and objective understanding of the role that housing wealth can play in prudent planning for retirement income,” Giordano said.

The Task Force plans to continue to hold its meetings in conjunction with influential organizations like MIT that can help advance conversations of housing wealth and its significance in retirement.

Written by Jason Oliva