U.S.-China Housing Reverse Mortgage Market, Potential Demand, Challenges
There are three types of housing reverse mortgage models, namely the loan model, the insurance model and the "bank and insurance" cooperation model. The U.S. housing reverse mortgage market mainly adopts the loan model, while the Chinese housing reverse mortgage market mainly adopts the insurance model.
The U.S. home reverse mortgage market started early, with four product types: equity-converted mortgages, single-purpose home reverse mortgages, homeowner plans, and financial freedom plans. Among them, the Equity Conversion Mortgage (HECM) is the most popular home reverse mortgage product in the U.S. market, currently accounting for about 95% of the market share, with more than 1.32 million insureds since issuance. In 1989, the U.S. federal government officially authorized the Federal Housing Administration to provide two-way guarantees for HECM borrowers and borrowers, marking the official entry of the U.S. housing reverse mortgage market into the federal-led stage.
China's housing reverse mortgage market started late, the number of products is small, and the coverage rate needs to be improved.
There are certain potential needs in the mainland housing reverse mortgage market: first, the aging of the mainland has greatly deepened; Second, the "three-pillar pension insurance system" is in the process of gradual improvement, and residents need more abundant financial products to improve their pension security; Third, the housing ownership rate of the elderly is relatively high; Fourth, the number of families who have lost their independence is likely to rise. However, its development also faces a series of challenges, including strong motivation for bequest under low inheritance tax, legal risks and the risk of falling housing prices.
The enlightenment of overseas experience is as follows: (1) the participation of private institutions in the housing reverse mortgage market faces many challenges, and the development of this market in the United States and South Korea is inseparable from the participation and guidance of government forces; (2) new sources of funds can be provided to lenders through policy financial institutions, asset securitization and other channels; (3) Research and development of differentiated products to meet diverse needs; (4) Strengthen the publicity of relevant products, establish a mandatory consultation system, and better protect the rights and interests of the elderly; (5) Establish a guarantee insurance fund and a two-way guarantee mechanism to reduce the risks faced by both borrowers and borrowers.
On September 6, 2013, the State Council issued the "Several Opinions on Accelerating the Development of the Pension Service Industry", proposing to carry out the pilot project of housing reverse mortgage pension insurance for the elderly. On June 23, 2014, the former China Insurance Regulatory Commission issued the "Guiding Opinions on Carrying out the Pilot Program of Housing Reverse Mortgage Pension Insurance for the Elderly", marking the official launch of the pilot work of housing reverse mortgage pension insurance for the elderly. In the more than 10 years since the pilot project of housing reverse mortgage was launched, how has the housing reverse mortgage market developed in mainland China? As the world's largest market for housing reverse mortgages, how did the U.S. market develop? What are the implications for China? Through the study of the housing reverse mortgage market in China and the United States, this paper analyzes the enlightenment of the development of the U.S. market to China, and provides reference for the development of China's housing reverse mortgage market.
1. The model of housing reverse mortgage
In the context of the aging population in mainland China, housing reverse mortgage is considered to be an effective way for elderly homeowners to cope with the problem of home care. Housing reverse mortgage has different models in different countries and regions, mainly including loan model, insurance model and "bank and insurance" cooperation model (Zhang Jing, 2023), these three models are introduced separately below.
The first model is the mortgage model of home reverse mortgage, also known as "home reverse mortgage", and the most prominent manifestation of this model is the Home Equity Conversion Mortgage (HECM) program in the United States. The operation process of the HECM plan is that the elderly who have reached a certain age requirement will register their housing with the bank as a guarantee, and the elderly can continue to live in the house under their name, and at the same time, the bank will issue loans to the elderly in a lump sum or in installments, until the loan expires, that is, when the elderly person dies, the mortgaged house is owned by the bank, and the bank repays the principal and interest with the income from the sale, and the excess part cannot be recovered.
The second model is the insurance model of housing reverse mortgage, which is the model adopted by the housing reverse mortgage pension insurance launched by the mainland. The "Guiding Opinions of the China Insurance Regulatory Commission on Carrying out the Pilot Project of Housing Reverse Mortgage Pension Insurance for the Elderly" pointed out that reverse mortgage pension insurance is an innovative commercial pension insurance business that combines housing mortgage and lifelong pension insurance, that is, the elderly who have full property rights of the house will mortgage their real estate to the insurance company, continue to have the right to occupy, use, earn and dispose of the property with the consent of the mortgagee, and receive the pension until death in accordance with the agreed conditions; After the death of the elderly, the insurance company obtains the right to dispose of the mortgaged property, and the proceeds of the disposal will be used to pay for the related expenses of pension insurance on a priority basis. The main feature of housing reverse mortgage endowment insurance is that the policyholder does not need to pay premiums to the insurer at the time of insurance, but mortgages its house to the insurer to guarantee the consideration for the future payment of endowment insurance-related expenses, that is, the mortgaged housing is to guarantee the insurer's "pension insurance premiums payable" of the policyholder.
The third "banking and insurance" cooperation model is a new type of operation model that integrates commercial banks and insurance companies, which is represented by the Financial Freedom program in the United States. This model is usually manifested in the joint issuance of housing reverse mortgage products by life insurance companies and commercial banks, and the method of signing new contracts or establishing new companies can be adopted in terms of market operation. The former mainly refers to the commercial bank and the life insurance company by signing a new contract to form a business connection and clarify the rights and obligations of both parties, and at the same time use the advantages of both parties to better design the product, the form of the product can be in the form of a loan or annuity, and the product can be sold in the business outlets of both parties. The latter mainly refers to the establishment of a new company jointly funded by a life insurance company and a commercial bank, and the new company integrates the superior resources of both parties to carry out product research and development and sales, and the product can also take the form of a loan or annuity (Cheng Wei, 2023). The specific operation process of this model is that the elderly mortgage their real estate with the bank, obtain a lump sum loan, and then purchase whole annuity life insurance from the insurance company, and the insurance company will pay the annuity regularly until death. The advantage of this model is that it can not only give full play to the advantages of commercial banks in real estate pricing, but also make full use of the rich experience of insurance companies in dealing with the longevity risks of the elderly.
2. Research on the U.S. housing reverse mortgage market
2.1 Introduction to U.S. Housing Reverse Mortgage Products
The U.S. housing reverse mortgage mainly adopts the "loan model", so the products in the U.S. housing reverse mortgage market are mainly housing reverse mortgage products. According to the different levels of involvement of governments, social institutions, and private companies in product operation and management, the products in the U.S. housing reverse mortgage market can be divided into four types, and these four types correspond to four products.
The first product is a net worth converted mortgage (HECM), which is a government-led development product for older homeowners with lower property values. HECM is designed and administered by the U.S. Department of Housing and Urban Development (HUD), and the Federal Housing Administration (FDA) provides a two-way risk guarantee for both the borrower and the borrower. Compensate the borrower if the proceeds from the sale are insufficient to cover the total amount of the mortgage and ensure that the borrower can continue to receive the mortgage payment in the event of a default by the lender. HECM is the most popular home reverse mortgage product in the U.S. market, currently accounting for about 95% of the market share.
The second product is the Single-Purpose Reverse Mortgage, which is jointly carried out by the government and social institutions, mainly for low- and middle-income groups. Its best feature is that government agencies or non-profit organizations provide funds as lenders, and the funds have a specific purpose, which is typically represented by deferred loans for property repair improvements and deferred property taxes for property taxes.
The third is the Home Keeper Program, which is government-supported and is aimed at older homeowners with moderate property values. Introduced in 1996 by Fannie Mae (Federal National Mortgage Association, Fannie Mae), the program was designed to meet unmet market needs due to the loan limit requirements of the HECM program, so the program was more lenient than the HECM program in terms of loan limits, loan purposes and property types. However, as the loan limits of the HECM program continued to increase, the target group for the HECM program expanded from older homeowners with lower property values to older homeowners with lower and medium property values, which squeezed the market space for the homeholder program and reduced its market demand, which eventually led to the homeowner program exiting the market in 2008.
The fourth type is the Financial Freedom Program, which is privately owned. This type of product is not guaranteed by a government agency and has a relatively high loan cost, but its biggest feature is that it is not subject to the maximum amount of FHA loans, so it is more suitable for older homeowners with higher property values. Launched in 1999 by the Financial Freedom Fund for the Elderly, it was withdrawn from the market in 2011 due to the 2008 financial crisis that caused housing prices across the United States and the Dodd-Frank Act of 2010 to raise the regulatory standards for banks, leading to a focus on the banking business of its parent company, One West (Chen Gong and Zheng Bingwen, 2023).
2.2 Development of the U.S. housing reverse mortgage market
Since the involvement of the U.S. federal government and the degree of involvement have a crucial impact on the development of the U.S. housing reverse mortgage market, this paper divides the development stages of the U.S. housing reverse mortgage market into the private-led stage, the initial intervention stage of the federal government and the federal-led stage.
The period of private dominance was from 1961 to 1980. In 1961, Deering Saving & Loan issued the first home reverse mortgage contract in the United States, marking the creation of home reverse mortgages in the United States. Subsequently, some private banks and some local governments have also begun to launch their own housing reverse mortgage projects. From 1961 to 1980, the private sector dominated the market, local governments began to experiment with some small projects, and the federal government did not yet intervene in the market (Chen Gong and Zheng Bingwen, 2023).
The initial involvement of the federal government was from 1981 to 1988. In 1981, Ken Scholen received federal funding to create the National Center for Home Equity Conversion (NCHEC), a nonprofit organization. The main function of the institution is to publicize and introduce various housing reverse mortgage products to the public, and to educate the general public about financial management, and its establishment also indicates that the federal government has begun to intervene in the development of the market. Congress then passed a series of laws authorizing the U.S. Department of Housing and Urban Development to research, develop, and administer HECM programs, and the Federal Housing Administration provided two-way guarantees to both borrowers and borrowers, paving the way for the official launch of HECM programs. From 1981 to 1988, the U.S. housing reverse mortgage market was characterized by the gradual dominance of the federal government in the market, and the enthusiasm of the private sector to participate in the market was generally not high.
The period of federal government dominance is from 1989 to the present. In 1989, the U.S. federal government officially authorized the Federal Housing Administration to provide two-way guarantees for both borrowers and borrowers of equity conversion mortgages (HECM), marking the official entry of the U.S. housing reverse mortgage market into a federally dominated phase. The two-way guarantee system established by the federal government has greatly reduced the risk of borrowers and borrowers participating in the market, greatly increased the enthusiasm of borrowers and borrowers to participate in the market, and also made the US market really gradually embark on the path of maturity and rapid development (Zheng Bingwen and Chen Gong, 2023).
Since HECM products account for more than 95% of the U.S. residential reverse mortgage market share and the product is issued across the United States, the development of HECM products is largely representative of the development of the U.S. residential reverse mortgage market after 1989 (Chen Gong and Zheng Bingwen, 2023). The number of new issuances and growth rates of HECM products over the years are shown in Chart 2. As can be seen from Figure 2, after a steady development in the initial period (1990-2000), the annual new issuance of HECM products ushered in an explosive growth from 2001 until the financial crisis in 2008, during which the annual new issuance of HECM exceeded 4,500. The main reasons for this phenomenon include the overall good macroeconomic development in the United States, the ample liquidity provided by financial institutions such as Fannie Mae in the secondary market, the downward trend in interest rates, and the stable development of the real estate market (Zheng Bingwen and Chen Gong, 2023). The deep adjustment of the real estate market brought about by the 2008 financial crisis and the relatively tight credit environment caused a significant downward trend in the issuance of HECM, and it was not until 2019 that the new issuance of HECM resumed its growth trend.
3. Research on China's housing reverse mortgage market
3.1 Development of China's housing reverse mortgage market
China's housing reverse mortgage market started late and has a small number of products. On June 23, 2014, the former China Insurance Regulatory Commission issued the "Guiding Opinions on Carrying out the Pilot Program of Housing Reverse Mortgage Pension Insurance for the Elderly", marking the official launch of the pilot work of housing reverse mortgage pension insurance for the elderly. On July 31, 2018, the former China Banking and Insurance Regulatory Commission issued the Notice on Expanding the Scope of Housing Reverse Mortgage Pension Insurance for the Elderly, and began to promote housing reverse mortgage pension insurance nationwide. Since the pilot project in 2014, the mainland housing reverse mortgage market has been developing for nearly a decade. However, up to now, there are only two housing reverse mortgage pension insurance products in the mainland, one of which has ceased to operate, and the other has a small number of underwriters.
3.2 Analysis of the potential demand for China's housing reverse mortgage market
3.2.1 The aging of the mainland has deepened significantly
The mainland's aging population has deepened greatly, mainly in two aspects:
First, the proportion of the elderly population is high. The proportion of the population aged 60 and above in mainland China has increased from 11.03% in 2005 to 21.10% in 2023, an increase of 10.07 percentage points in 18 years. The proportion of people aged 65 and over has doubled in 18 years, up from 7.7% in 2005 to 15.4% in 2023. Further according to the United Nations criteria for the classification of aging [1], the mainland has entered a moderately aging society in terms of the proportion of the population aged 60 and above and the proportion of the population aged 65 and above.
Second, the elderly population is large. The size of the population aged 60 and above in mainland China has grown rapidly, from 144.08 million in 2005 to 296.97 million in 2023, an increase of 1.06 times in 18 years, with an average annual growth rate of 4.1%. The same is true for the population aged 65 and above, which has increased from 100.45 million in 2005 to 216.76 million in 2023, an increase of 1.16 times, with an average annual growth rate of 4.37%, making the mainland the largest elderly population in the world.
3.2.2 The mainland's "three-pillar pension insurance system" is in the process of gradual improvement
According to the calculation of the replacement rate of basic old-age insurance in mainland China in the "China Pension Development Report 2012" released by the World Social Security Research Center of the Chinese Academy of Social Sciences, the replacement rate of basic old-age insurance in mainland China dropped from 72.9% in 2002 to 57.7% in 2005, and further decreased to 50.3% in 2011. The latest "China Pension Development Report 2023" pointed out that the replacement rate of the first pillar pension in mainland China in 2022 will only be about 46%. According to the World Bank's recommendation, if retirees want to maintain their pre-retirement standard of living, the target replacement rate for pensions should reach more than 70% (Zhang Su and Zhu Yuan, 2023). It can be seen that the replacement rate of the first pillar pension in the mainland is low, and it is necessary to give full play to the supplementary role of the second and third pillars. Although the mainland has established supplementary pension systems such as enterprise annuities, occupational annuities, and personal pensions, the coverage of the second pillar pension is relatively narrow as the payment of enterprise annuity is not mandatory, and occupational annuities are only available to employees of government agencies and institutions (Sun Linlin, 2023), of which the number of people covered by enterprise annuities is only 30.1 million [2]. In addition, the personal pension system has been established since 2022, which is relatively late and is still in its infancy. Therefore, in the process of gradual improvement of the "three-pillar pension insurance system" in the mainland, elderly residents need more abundant financial products to improve their pension security.
3.2.3 The elderly in mainland China have a relatively high rate of home ownership
The mainland's homeownership rate is as high as 87%, which is significantly higher than that of the world's major developed countries such as the United States, the United Kingdom and France, and also higher than that of Latin American countries with high homeownership rights such as Brazil, Argentina and Chile. In addition, according to the survey data of the People's Bank of China, in 2019, the assets of urban households in mainland China were mainly physical assets, with housing accounting for nearly 70%, and the home ownership rate of urban households was as high as 96%. Looking further at the housing ownership rate of the elderly in the mainland, it can be found that the current situation of the elderly in the mainland is less savings and more real estate, of which the number of elderly people who own one or more properties accounts for more than 72%, compared with the United States, the United Kingdom and Japan and other developed countries in the world, the proportion of elderly people who own real estate in the mainland is relatively high, and the older the elderly, the more real estate they hold (Guan Fenna, 2022). Since the mainland housing reverse mortgage pension insurance products are applicable to the elderly who have full property rights of the house, the high housing ownership rate of the elderly has laid a solid foundation for the development of the mainland housing reverse mortgage market.
3.2.4 The number of single-person families has increased
The development of the housing reverse mortgage market is closely related to the motivation of residents to bequest. If there are a large number of childless families in an area, then the residents of the area will have a weaker incentive to bequest, which will be beneficial to the development of the housing reverse mortgage market in the area.
Since the 70s of the 20th century, the mainland has begun to implement the family planning policy. With the continuous implementation of family planning policies, single-child families are becoming more and more common. One-child families are at risk of the death of their only child (Liu and Wang, 2024). According to the estimation of the research team of the Finance Department of the National Population and Family Planning Commission (2006), as of 2006, there were 375,000 families with orphaned mothers over the age of 49 and no surviving children, with a peak of 1.51 million in 2038. Zhou Wei and Mi Hong (2013) found that in 2010, there were 553,000 single parents over the age of 49 in rural areas and 268,000 parents over the age of 49 in urban areas. At the same time, they predict that by 2030, the number of single parents over the age of 49 in rural areas will be 851,000, still higher than the 572,000 in urban areas. Liu Xuyang and Wang Guangzhou (2024) calculated that the number of single mothers who had exited childbearing age in 2020 was about 2.888 million, of which 969,000 were over 60 years old.
Although the results of each study vary, there is relative agreement in the description of the size of single mothers and the prediction of future trends, i.e., the size of the mother increases by about 100,000 to 200,000 people every five years (Liu and Wang, 2024). The growth of the size of single families has also expanded the potential demand for housing reverse mortgage products in mainland China.
3.3 Analysis of the challenges of China's housing reverse mortgage market
3.3.1 Relatively preferential taxation of house inheritance in mainland China
The relative preferential tax treatment of house inheritance in mainland China is mainly manifested in two aspects: first, the mainland has not yet introduced inheritance tax, which is different from the situation where most economically developed countries in the world have levied inheritance tax; Second, in terms of personal inheritance of houses, if the legal heirs inherit the ownership of the house through inheritance, they are exempt from deed tax, and in addition, the documents established in the process of inheriting the house by individuals shall be calculated and paid stamp duty according to the tax item of "property right transfer documents", and the tax rate is 5/10,000.
It can be seen that the tax on the inheritance of houses in the mainland is relatively favorable, so the cost of children inheriting their parents' houses is relatively low, and the parents' motivation for bequest will become stronger, which will affect the development of the mainland housing reverse mortgage market to a certain extent.
3.3.2 Longevity risk
The average life expectancy in the mainland has been steadily increasing, from 67.77 years in 1981 to 77.93 years in 2020, an increase of 10.16 years in 39 years, with an average annual increase of 0.26 years. The increase in average life expectancy has put lenders such as insurance companies and commercial banks at risk that the revenue from the sale of the home will not cover the total mortgage amount. In addition, there are significant gender differences in the average life expectancy of the mainland, with the average life expectancy of men increasing from 66.28 years in 1981 to 75.37 years in 2020, an average increase of 0.23 years per year, and the average life expectancy of women increasing from 69.27 years in 1981 to 80.88 years in 2020, an average increase of 0.3 years per year, and the average life expectancy of women is significantly higher than that of men. At the same time, overall, the gap between the average life expectancy of men and women widened from 2.99 years in 1981 to 5.51 years in 2020, which also indicates that mainland lenders face a higher risk of longevity for female borrowers than male borrowers.
3.3.3 Legal Risks
First of all, according to the Interim Regulations of the People's Republic of China on the Assignment and Transfer of Urban State-owned Land Use Rights, the maximum term for the transfer of residential land use rights in mainland China is 70 years. Although the Civil Code of the People's Republic of China stipulates that the term of the right to use land for residential construction shall be automatically renewed upon expiration. The payment or reduction of renewal fees shall be handled in accordance with the provisions of laws and administrative regulations. However, in practice, there is no clear legal provision on the payment or reduction of renewal fees. If the insured is still alive before the expiration of the residential land use right, who should pay the residential land use right fee? At present, there are no relevant provisions in the law, which may increase the legal risk of insurance companies or commercial banks.
Secondly, according to the provisions of the Civil Code of the People's Republic of China, the creation, alteration, transfer and extinction of immovable property rights shall become effective upon registration in accordance with the law. Without registration, it shall not take effect, unless otherwise provided by law. The reality of the mainland is that there are many small property rights houses in the vast grassroots areas, and these houses cannot or have not yet been registered with the real estate registration authority, can they be used as collateral for the mainland's current housing reverse mortgage pension insurance products? At present, there are no relevant provisions in the law, which may increase the legal risk of insurance companies or commercial banks.
3.3.4 Operational Risks
Therefore, if an insurance company wants to carry out the business of housing reverse mortgage insurance products, it must cooperate with commercial banks, first by opening a capital account with a commercial bank, and then by the insurance company and the bank to connect funds. In the process of pension distribution, insurance companies and commercial banks need to cooperate closely and cooperate with each other. If either of the insurance company and the commercial bank has the problem of poor capital circulation, it will make it difficult for the elderly to obtain a pension in time and in sufficient amount (Li Weiqun and Chen Ting, 2021), which will bring operational risks to insurance companies and commercial banks.
If the housing reverse mortgage product adopts the "bank and insurance" cooperation model, that is, the elderly can obtain a lump sum loan by mortgaging the property to the bank, and then purchase whole annuity life insurance from the insurance company, and the insurance company will pay the annuity regularly until death. Although this model can give full play to the advantages of commercial banks in real estate pricing and insurance companies in dealing with the longevity risks of the elderly, it requires close cooperation between the two to prevent operational risks (Zhang Jing, 2023).
3.3.5 Risks of falling house prices
The month-on-month sales price index of second-hand housing in 70 large and medium-sized cities has been negative since February 2022, indicating that second-hand housing prices are declining during this period. The downward trend in house prices has challenged the pricing of homes by lenders such as commercial banks and insurance companies. If the lender receives less than the total amount of the mortgage loan from future home sales revenue, the lender may incur a loss.
4. Enlightenment of the development of the U.S. housing reverse mortgage market to China
4.1 Establish policy-based housing financial institutions and broaden the channels of funding sources
The development of the housing reverse mortgage market in the United States and South Korea depends on the deep participation of domestic policy-based housing financial institutions. In the Republic of Korea, for example, in March 2004, the Housing Finance Corporation Act was passed to establish the Housing Finance Corporation, a policy-based housing financial institution. One of the businesses of the Housing Finance Corporation is the provision of housing reverse mortgages, and the number of loans it provides has increased from $9.9 billion in 2017 to $13.6 billion in 2021, effectively guaranteeing the lives of the elderly. In addition, from the experience of the United States, Fannie Mae was established in 1938, which was part of the Federal Housing Administration. In 1989, Fannie Mae announced the purchase of all eligible HECM products, establishing a secondary market for HECM, providing further liquidity support to lenders, and effectively broadening the sources of funds for lenders (Chen Gong and Zheng Bingwen, 2022).
The mainland can learn from the experience of South Korea and consider establishing a special policy-based housing financial institution to unify the operational process and information management platform of housing reverse mortgage business (Yu Xiaofen et al., 2023). At the same time, with the credit endorsement of the government, policy-based housing financial institutions can raise funds in the market at a lower cost to better provide housing reverse mortgage services to the elderly.
4.2 Carry out asset securitization to provide new sources of funds for lenders
For lenders in the housing reverse mortgage market, insurance companies and commercial banks, their main task is to provide a continuous source of funds for these loans, especially in the initial stage of starting this business, the cash flow of insurance companies or commercial banks is in a state of continuous outflow, and it is difficult to have premium income in the future (Zheng Bingwen, 2018), which brings greater operating pressure to insurance companies or commercial banks.
In response to the financial pressure, U.S. companies began to look for new sources of funding, the most representative of which was the securitization of housing reverse mortgages. In August 1999, the Financial Freedom Fund for the Elderly, in conjunction with Lehman Brothers, securitized a loan portfolio that it had purchased. Lehman Brothers used Structured Asset Securities to securitize a $317 million home reverse mortgage for structured financing, thereby providing strong financial support for the development of the Seniors Financial Freedom Fund, which helped it expand its business from a few western states to 35 states in the United States, and greatly increased the market share of its products (Szymanoski, 2000).
Commercial banks and insurance companies in mainland China can also learn from the asset securitization treatment methods of US companies when issuing housing reverse mortgage products, inject sufficient liquidity into the operation of related products and the development of the market, effectively revitalize housing reverse mortgage pension insurance products with a long cycle and large amounts, and reduce the related risks of commercial banks and insurance companies. At the same time, it should be noted that because the development of securitized products has a certain cycle, commercial banks or insurance companies need to maintain sufficient capital (Chen Gong and Zheng Bingwen, 2023).
4.3 Develop differentiated products to meet diverse needs
As shown in Figure 1, there have been four types of products in the U.S. housing reverse mortgage market, with equity-converted mortgages, homeholder programs, and financial freedom programs corresponding to older homeowners with lower, medium, and higher property values, respectively, as well as single-purpose home reverse mortgage products with funds that are directed to their purpose. In addition, equity conversion mortgages are further divided into standard products and bailout plan products, which differ in terms of loan amount, loan insurance premium, and closing costs. Overall, the United States has formed a relatively rich supply system of housing reverse mortgage products.
From the perspective of market development in the mainland, the current product types are relatively single, which is difficult to meet the diverse needs of the elderly in the mainland. Insurance companies and commercial banks in mainland China can strengthen the research on the needs of potential customers in the housing reverse mortgage market in light of the actual situation in the mainland, and develop differentiated housing reverse mortgage products according to the needs of customers of different genders, ages, health levels, marital status, children's status and property value, so as to form a multi-level and diversified product supply system to meet the diversified needs of customers.
4.4 Strengthen the publicity of relevant products and establish a mandatory consultation system
Housing reverse mortgage products are aimed at the elderly aged 60 and above, and the financial literacy and financial knowledge of the elderly are relatively lacking. However, the structure of housing reverse mortgage products is complex, contains a variety of risk factors, and involves multiple stakeholders such as the elderly, insurance companies, commercial banks and securities companies, which makes it more difficult for the elderly to understand and accept related products.
In response to this dilemma, the U.S. federal government, Congress and many institutions have actively promoted the knowledge of housing reverse mortgage products, vigorously strengthened the education of elderly borrowers, and established a mandatory counseling system through financial support. When borrowers want to apply for a home equity conversion loan product, they need to first consult with a U.S. Department of Housing and Urban Development certified consulting agency and obtain a counseling certificate to ensure that the borrower has a full understanding of the features of the product and the rights and obligations under the terms of the product (Chen Gong and Zheng Bingwen, 2023).
In 2014, the mainland began the pilot work of housing reverse mortgage pension insurance, and as of this year, the mainland housing reverse mortgage market has developed for nearly ten years. However, in this decade, the market has developed relatively slowly, with a total of less than 300 orders, which has a lot to do with the lack of publicity of related products and the lack of understanding of products by the elderly. Therefore, the relevant authorities can consider establishing a mandatory consultation system to help elderly borrowers gain an in-depth understanding of the functions and characteristics of the product, and promote the development and growth of the housing reverse mortgage market.
4.5 Establish a guarantee insurance fund and a two-way guarantee mechanism
A review of the history of the development of the U.S. housing reverse mortgage market shows that before 1989, the private sector dominated the supply side, and the market was mostly unsecured insurance products issued by private institutions, and the market developed very slowly at this stage. The main reason for this result is that unsecured insurance products expose both borrowers and borrowers to greater market risks, and at the same time, there is a lack of supervision in the market, and violations of the legitimate rights and interests of elderly homeowners occur from time to time (Chen Gong and Zheng Bingwen, 2023). In response, the U.S. Congress passed the National Housing Act in 1987 authorizing the introduction of a equity-to-equity mortgage program, with the Federal Housing Administration providing a two-way guarantee mechanism for both borrowers and borrowers. The establishment of the two-way guarantee mechanism has greatly reduced the risks faced by the borrower and the borrower of the project's product, greatly increased the enthusiasm of the borrower and the borrower, and also promoted the maturity of the US housing reverse mortgage market (Zheng Bingwen and Chen Gong, 2023).
Referring to the operation of the guarantee policy in the U.S. housing reverse mortgage market, the mainland can consider establishing a guarantee insurance fund and a two-way guarantee mechanism for both borrowers and borrowers, and use the fund to compensate for the losses that may be caused to both borrowers and borrowers during the operation of housing reverse mortgage pension insurance products, and reduce the risks faced by both borrowers and borrowers.
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[16] Szymanoski E. J. Evaluation Report of FHA’s Home Equity Conversion Mortgage Insurance Demonstration (Final Report), Washington, D.C.: U.S. Department of Housing and Urban Development, 2000.
Annotation:
[1] According to the United Nations criteria for classifying ageing, when the proportion of the population aged 60 and over in a country or region exceeds 10% or the proportion of the population aged 65 and above exceeds 7%, it means that the country or region has entered a mildly aging society; More than 20% of the population aged 60 and over or more than 14% of the population aged 65 and over indicates that the country or region has entered a moderately aging society; More than 30% of the population aged 60 and over or more than 21% of the population aged 65 and over indicates that the country or region has entered a severely aging society.
[2] Data from the 2022 Statistical Communiqué on the Development of Human Resources and Social Security.
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