Reverse Mortgages and Linked Securities (eBook)

Vishaal B. Bhuyan has been involved in the "life markets" for over five years and has focused on analyzing and investing in life settlements, reverse mortgages, and other linked assets. He has advised a number of large investment funds on the longevity and mortality risk asset class and has been invited to speak at various investment and industry-specific conferences across the United States, Europe, and Asia. Bhuyan is also the editor and coauthor of Life Markets: Trading Mortality and Longevity Risk with Life Settlements and Linked Securities (Wiley) and will be releasing The Esoteric Investor (FT Press) in 2011.

Preface.

Acknowledgments.

List of Contributors.

Part One Reverse Mortgage Basics.

Chapter 1 Reverse Mortgage Primer.

Loan Disbursements.

Overview of Lender Challenges.

Summary.

Chapter 2 The History of Reverse Mortgages - anInsider's View.

Formative Years.

Private Programs.

First Lifetime Reverse Mortgages.

Fannie Mae Stakes a Claim to the Marketplace.

Roots of the Securitization of Reverse Mortgages.

Summary.

Chapter 3 HECM Explained Reverse Mortgages Originated throughthe Home Equity Conversion Mortgage (HECM) Program.

Legislative History and Program Fundamentals.

Disbursing Funds and Calculating Loans and Interest.

Changes to the Program Following the 2008 Act.

Consumer Focused Elements of the Program.

Summary.

Part Two Underwriting and Risk Analysis.

Chapter 4 Underwriting Reverse Mortgages.

Underwriting Life Expectancy.

Life Settlement versus Reverse Mortgage Underwriting.

Simplicity of the Current Reverse Mortgage UnderwritingProcess.

Why Does Underwriting Matter?

Proposed Elements of Reverse Mortgage Underwriting.

Summary.

Chapter 5 Risk Mitigation from Existing and ProposedFinancial Products.

Reverse Mortgage Risks.

Agency versus Non-Conforming Loans.

Summary.

Chapter 6 Longevity Risk and Fair Value Accounting.

Longevity Cost Calculator(TM) as a Loan Underwriting andPricing Tool.

Reverse Mortgage Loan Pricing Using the Longevity CostCalculator

Existing Accounting Framework.

Suggested GAAP Compliant Methodology to Standardize LifeSettlement Underwriting.

Summary.

Chapter 7 Risk Mitigation Available Hedges & Products inDevelopment for Risk Transfer.

Hedging Crossover Components in the Capital Markets.

Insurance Solutions.

Summary.

Chapter 8 Criteria for Rating U.K. Reverse Mortgage-BackedSecurities.

Overview of Reverse (Equity Release) Mortgages.

Reverse Mortgage-Backed Securitization.

Mortality Assumptions.

Prepayment Assumptions.

House Price Increase Assumptions.

HPI in Year 1.

HPI in Years 5-15.

HPI in Years 16 to Legal Final Maturity Date.

Costs and Sale Period.

Summary.

Part Three Tax Treatment.

Chapter 9 United States Federal Income Tax Aspects of ReverseMortgages.

What is a Reverse Mortgage?

Deductibility of Interest Payments on Reverse Mortgages.

Securitization of Reverse Mortgage Loans Through REMICStructures.

Practical Observations Regarding Investment Reverse MortgageREMIC Securities.

Summary.

Part Four Reverse Mortgages in Context.

Chapter 10 Unlocking Housing Equity in Japan.

Implementation in the Japanese Context.

Feasibility of Reverse Mortgages in Japan.

Summary.

Chapter 11 The Secondary Market in Home Equity ConversionMortgages.

The Reverse Mortgage to Liquidate Home Equity.

HECM: A Financial Innovation.

Cash Flows, Risk, and Uncertainty.

The Secondary Market for HECM.

HECM Securitization.

Longevity Risk Embedded in HECM.

The Constraints of the Underlying Asset.

Concluding Remarks.

Summary.

Appendix A Housing Wealth Among the Elderly.

Wealth in Housing.

Owner-Occupancy Rates.

How Risky is Housing Wealth?

Do the Elderly Decumulate their Housing Wealth?

Appendix B: Reverse Mortgage Analytics.

Determining the Payout Values: Practical Considerations.

Computing Payout Values: An Example.

Notes.

Glossary.

About the Author.

About the Contributors.

Index.