Research On Risk Management Of Reverse Mortgage In China

Reverse mortgage, a new mortgage on houses, serves to provide for the aged. A reverse mortgage is a home loan that provides cash payments based on home equity. Homeowners normally defer payment of the loan until they die, sell, or move out of the home. As this loan is just the opposite of the conventional mortgage, it is called "reverse mortgage".This paper explains the features of reverse mortgage from the life cycle theory and the capital mobility theory. How to rationally allocate income and achieve capital flow to make maximized benefit is the theme of this paper. Reverse mortgage can serve to maximize the benefit of houses, a major part in a family’s asset. This paper introduces the reverse mortgage including products, types and operating models in America, France and Japan, which may help us to get a general understanding of the risks of reverse mortgage in foreign countries.The risks of reverse mortgage contain the risk of interest rate, life span, house price fluctuation, adverse selection and the moral risk. How to deal with these risks so as to smoothly launch this new financial product in China is research-worthy. With interest rate (much higher than developed countries) changing every year, its risk is really high in China. Improved living condition has enabled China’s life expectancy to reach 76. A reasonable product price is closely linked to life expectancy, which can be obtained from the life cycle table of life insurance companies. House price fluctuation risk is the highest. This paper expounds the reasons of house price fluctuation from angles of society, nature, economy, market and administration. At the same time, the author also offers solutions to these risks. House price fluctuation risk can be minimized for both sides by evaluating every three to five years, with evaluated price as 50% of the current house price. The adverse selection and moral risk can be prevented through physical examination and individual credit report. The interest rate risk can be reduced by adjusting the interest rate risk every year.Analyzing the practical experiences of reverse mortgage in Nanjing, Shanghai and Beijing and the product design model of reverse mortgage launched by XingFu Life Insurance, the author concludes some experiences for the country to smoothly push out relevant policies. The reverse mortgage is now being piloted in China and needs to be understood and accepted by the public. Meanwhile, the risks of this new financial product should be properly controlled.