The Under-utilization of Housing Wealth In Retirement…

By Anthony B. Sanders

The Under-utilization of Housing Wealth In Retirement (Is Credit Too Tight and Shared Appreciation Mortgages As A Solution?)

There is an interesting event coming to Washington DC — the 2018 Housing Wealth in Retirement Symposium brought to you by The Funding Longevity Task Force at The American College of Financial Services and the Bipartisan Policy Center (BPC).

The goal? The goal for the Symposium is to facilitate collaboration among stakeholders – including regulatory agencies, NGOs, and the financial services community – to address the under-utilization of housing wealth in retirement.

The speaker list is excellent. The Urban Institute’s Laurie Goodman is the apparent headliner.

Here are my two cents (which has been devalued to less than a cent).

The American population is aging and many are entering retirement. But are they prepared?

First, The Federal government and its stakeholders have already tried to get more households to be stakeholders (that is, homeowners). And this happened.

Yes, the great leap forward in home ownership ultimately failed after almost reaching 70% before subsiding back to around 64%. That is, trying to get marginal households to switch from renting to owning. (By lowering credit standards and down payment requirements).


Mortgage purchase applications, after hitting its last surge in 2007, subsided as lenders tightened credit requirements (partially by themselves, partly because of increased regulation [Consumer Financial Protection Bureau’s Qualified Mortgage (QM) and other rules]). In any case, fewer mortgages are getting into the hands of households that are currently renting despite the affordability of home purchases being lower (in terms of mortgage rates) than before the financial crisis).


Laurie Goodman is likely to advocate relaxing credit standards ….  again. But deregulation has to happen as well. But slow wage growth compared to more price growth is also hampering households getting into homeownership.


Well, rising mortgage rates as The Fed withdraws it stimulus isn’t going to help renters shift into homeownership.

I worked on a product at Lehman Brothers and then Bank of Scotland in the 1990s called the Shared Appreciation Mortgage (SAM), but with a twist. The loans allowed usually elderly homeowners to release a cash sum up to 25 per cent of the value of their home, often interest-free. When the property was sold, the loan would have to be repaid in full plus up to  75 per cent of any increase in value of the property. Here is link to a paper I wrote on UK SAMs.

Yes, Equity Extraction SAMs are a variant of Reverse Annuity Mortgages. While demonized in the UK because home prices rose far faster than anticipated, the media forgets that the homeowner still gets  25% of the property price appreciation on property sale (or death). Here is a paper I wrote in 1986 on Shared Appreciation Mortgages.

Chris Mayer from Columbia is likely going to talk about his company’s twist on the SAM product. I would be very interested in hearing what Mayer’s version is of the SAM product. [My original pricing spreadsheet for the Bank of Scotland SAM deal is available to my students at George Mason University].

The UK SAM deals are still out there and retain AA rating from S&P.


Here is a prospectus supplement for one of the Bank of Scotland Shared Appreciation deal. bosprosup

Conclusion? Maybe Laurie Goodman is correct and the credit envelope could be expanded (but not to 2005 levels). But we need to deregulate the mortgage industry. Products like the UK SAM make perfect sense, but I am afraid that the CFPB will rule against it.


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