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Article

When Do Securitized Reverse Mortgages
Become Liabilities

Carlos E. Ortiz, Charles A. Stone and Anne Zissu
The Journal of Structured Finance Spring 2013, 19 (1) 57-64; DOI: https://doi.org/10.3905/jsf.2013.19.1.057
Carlos E. Ortiz
is a professor in the Department of Mathematics and Computer Science at Arcadia University in Glenside, PA.
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  • For correspondence: ortizc@arcadia.edu
Charles A. Stone
is a professor of finance and business management at Brooklyn College School of Business at City University of New York in New York, NY.
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  • For correspondence: zfinance@interserv.com
Anne Zissu
is a professor and chair of the Department of Business at City Tech at the City University of New York and a research fellow at The Polytechnic Institute at New York University in New York, NY.
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  • For correspondence: azissu@citytech.cuny.edu
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Abstract

Reverse mortgages expose investors to the uncertain lifetimes of the borrowers. If a borrower lives longer than originally expected, the value of the reverse mortgage will have more time to approach and eventually surpass the value of the mortgaged property. A reverse mortgage is designed to negatively amortize; the mortgage value grows as interest accrues. Additionally, the home value may rise and fall over time. The time after mortgage origination at which the value of the reverse mortgage loan and the value of the mortgaged property are equal is called the cross-over point. In this article, the authors compute this time t*, relative to changes in rate of interest on the mortgage, inflation, and the value of the amount owed relative to the property value. They map the cross-over times with respect to these variables. Their conclusions offer important insights to those responsible for managing portfolios of reverse mortgages and risks derived from these mortgages.

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The Journal of Structured Finance: 19 (1)
The Journal of Structured Finance
Vol. 19, Issue 1
Spring 2013
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When Do Securitized Reverse Mortgages
Become Liabilities
Carlos E. Ortiz, Charles A. Stone, Anne Zissu
The Journal of Structured Finance Apr 2013, 19 (1) 57-64; DOI: 10.3905/jsf.2013.19.1.057

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When Do Securitized Reverse Mortgages
Become Liabilities
Carlos E. Ortiz, Charles A. Stone, Anne Zissu
The Journal of Structured Finance Apr 2013, 19 (1) 57-64; DOI: 10.3905/jsf.2013.19.1.057
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