Layman’s abstract for ASMBI article on Reverse mortgage and risk profile awareness: Proposals for securitization

Each week, we publish layman’s abstracts of new articles from our prestigious portfolio of journals in statistics. The aim is to highlight the latest research to a broader audience in an accessible format.
The article featured today is from the Applied Stochastic Models in Business and Industry with the full article now available to read here.
Di Lorenzo, EPiscopo, GSibillo, MTizzano, RReverse mortgage and risk profile awareness: Proposals for securitizationAppl Stochastic Models Bus Ind20211– 17. doi:10.1002/asmb.2664
The needs of a progressively aging population and the fragility of traditional pension systems impact heavily on public spending, in a manner that is aggravated by the current historical context. A socio-economic background suffering from the consequence of a global pandemic, in this sense, exacerbates pension systems’ chronic problems. In consequence, the future of large segments of the elderly population, characterised by a need for care and medical assistance, appears worryingly uncertain. In many ways, the same uncertainty also extends to a range of individuals who, despite owning a home, are then unable to benefit, at the end of their working life, from an adequate pension, able to ensure a decent quality of life. It is therefore important and, to a large extent, inevitable to define appropriate instruments, capable of managing those systemic processes that impact so harshly on pension systems’ sustainability.
The present work seeks to address the growing needs of these emerging categories of “new poor”, often referred to as “house rich and cash poor”, focusing, in particular, on reverse mortgage contracts. With a Reverse Mortgage, an elderly individual obtains a lump sum or a series of recurring payments whose amount depends on the expected liquidation value of their property and their age. They then continue living in their property until they die. This, however, is when their asset is sold, and the proceeds are used to pay back the loan. This paper analyzes the risk profile of the contract and suggests a securitization procedure. 
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