Maximizing Home Equity or Preventing Home Loss: Reverse Mortgage Decision Making and Racial Inequality

Maximizing Home Equity or Preventing Home Loss: Reverse Mortgage Decision Making and Racial... Abstract Background and Objectives Reverse mortgages are loans that allow older homeowners to borrow from their home equity with no repayment due until the borrower dies or moves out of the home. We currently know very little about how homeowners evaluate and experience reverse mortgages as solutions to their financial and housing needs in later life. Furthermore, despite an increasingly diverse population of reverse mortgage borrowers, we know little about how social inequalities may contribute to reverse mortgage decisions and their outcomes. In this paper, we examine reverse mortgage decision-making and experiences in a racially and economically diverse sample of older US homeowners. Research Design and Methods We conducted 44 in-depth interviews with older homeowners who were considering or who had obtained a reverse mortgage loan. We inductively and iteratively developed a thematic coding scheme that was applied to all interview transcripts. Results Our analysis produced a dichotomous schema of reverse mortgage decision making that was shaped by social and economic opportunities and constraints. For some participants, reverse mortgages represented strategic tools used to maximize home equity and its benefits. For others, it was an option of last resort to which participants turned when faced with the imminent loss of their home. Discussion and Implications Focusing on reverse mortgages, our analysis suggests way that social inequalities may be reproduced through financial decisions and the unequal landscapes of opportunity in which they are made. Housing, Disparities, Race, Qualitative research, Sociology of aging, Policy Reverse mortgages are loans that allow older homeowners to borrow from the accumulated value of their homes (home equity) with no repayment due until the borrower dies or moves out of the home. They provide an opportunity for older homeowners to stay in their current home, while simultaneously drawing on their home equity to meet daily expenses. Some have lauded reverse mortgages as an opportunity for older homeowners to affordably age in place (Prevost, 2014). However, others have criticized these loans as a form of predatory lending that involves high fees and interest rates, extracting large amounts of equity from borrowers who are often in precarious financial positions (Consumer Financial Protection Bureau, 2012). We currently know very little about how homeowners evaluate reverse mortgages as an option and experience this loan as a solution to their financial and housing needs in later life. Furthermore, despite an increasingly diverse population of reverse mortgage borrowers (Bishop & Shan, 2008; Shan, 2011), we know little about how social context and existing social inequalities may contribute to reverse mortgage decisions and their outcomes. In particular, racial inequalities in wealth, health, and access to credit may shape reverse mortgage decision making, as well as the risks and benefits of this loan option. While previous literature has examined how differential access to credit contributes to racial inequalities in wealth (Coates, 2014; Libman, Fields, & Saegert, 2012; Oliver & Shapiro, 2006), in this article, we consider whether a given loan product, the reverse mortgage, can have unequal consequences depending on the circumstance that surrounds it. Specifically, we draw on in-depth interviews conducted with a racially and economically diverse sample of older U.S. homeowners who were considering or who had obtained a reverse mortgage loan to examine reverse mortgage decision making and experiences. Beyond expanding our understanding of reverse mortgage loans, our analysis sheds light on how homeowners navigate unequal landscapes of constraints and opportunities in later life. Reverse Mortgages: Background and Existing Research The most common type of reverse mortgage in the United States is the Home Equity Conversion Mortgage (HECM). HECM loans, which are administered and insured by the U.S. Department of Housing and Urban Development (HUD), constituted nearly 100% of new reverse mortgage loan originations between 2008 and 2014 (Moulton, Haurin & Shi, 2015). HECM loans are available to individuals who are aged 62 or older and who have either paid off their mortgage, or who have small remaining loan balances. Recipients of HECM loans can choose to receive either a lump sum payment, monthly payments, or a line of credit. Borrowers pay a monthly service fee and interest, which are both deducted from their equity. While HECM holders are not required to make loan payments, they are required to maintain their property and pay local real estate taxes. A significant portion (10%) of reverse mortgage loans default as a result of unpaid taxes or insurance premiums (Consumer Financial Protection Bureau, 2012; Moulton et al., 2015). When the reverse mortgage holder dies, heirs have the option to sell the home (within 6 months) or purchase the home by paying off the loan or 95% of the home’s current assessed value. Otherwise, the lending institution takes possession of the property. Though only 2% of U.S. homeowners currently have a reverse mortgage loan (Moulton, Loibl, & Haurin, 2017), rates of reverse mortgages have risen and are expected to rise in the future as aging baby boomers enter retirement with fewer savings and more debt than previous generations (Moulton et al., 2017). An increasing proportion of older adults in the U.S. carry mortgage debt. For example, among homeowners over the age of 65, the portion of carrying mortgage debt increased from 22% to 30% between 2001 and 2011 (Moulton, Loibl, & Haurin, 2017). Additionally, a declining prevalence of defined-benefit pension plans that provide retirees with guaranteed income supports has increased the financial vulnerability of older homeowners (Li, Burr, & Miller, 2017; O’Rand, 2003). Some evidence suggests that the demographics of reverse mortgage borrowers are also shifting, with an increasing prevalence of younger and nonwhite borrowers (Consumer Financial Protection Bureau, 2012; Shan, 2011). However, given that reverse mortgage loans are relatively uncommon, it is difficult to gain information about reverse mortgage borrowers from nationally representative surveys. Furthermore, loan-level administrative data from HUD contain limited information about the characteristics of borrowers. Only a few recent studies have used survey data to examine both the characteristics and motivations of reverse mortgage borrowers (Moulton et al., 2017; Redfoot, Scholen, & Brown, 2007). Most recently, Moulton and colleagues (2017) analyzed survey data from nearly 1,800 older homeowners who had received counseling for reverse mortgage loans. The authors also compared demographic and financial characteristics of households that received reverse mortgage counseling to the population of older U.S. homeowners more broadly. Survey participants considering reverse mortgages were more likely than the general population of homeowners to have mortgage debt. Relative to the general population of homeowners, reverse mortgage seekers were also more likely to be black. The study found that the most common motivation for seeking a reverse mortgage was to gain extra income for everyday expenses. While these survey data provide some information about reverse mortgage borrowers, more research is needed to elucidate the decision-making processes and contexts that underlie reverse mortgage borrowing. To our knowledge, only one qualitative study has examined reverse mortgage decision making decision making (Leviton, 2002) and this study is limited to a sample of predominantly white borrowers. Research is needed to capture the experiences of nonwhite homeowners who represent an increasing portion of reverse mortgage seekers, and who may confront racially structured risks and opportunities that contribute to their decisions and experiences. This article extends the existing literature by examining the experiences of both black and white homeowners. Housing Policy and Inequalities in Health and Wealth Housing policy has played an important role in creating the large wealth inequalities that exist between black and white Americans (Coates, 2014; Oliver & Shapiro, 2006; Pattillo, 2013). In particular, policies that first denied African Americans access to credit, and then granted it to them on unequal terms, have contributed to racial inequalities in housing wealth (Williams, Nesiba, & McConnell, 2005). Before 1970s, many African Americans were denied mortgages as a result of redlining practices which designated many predominantly African American neighborhoods as too risky for government-backed Federal Housing Administration (FHA) home mortgage loans (Newman, 2009; Rugh & Massey, 2010). In the post-redlining era, risky subprime loan products such as adjustable rate mortgages were disproportionately marketed to African American borrowers (Rugh & Massey, 2010). While existing research on housing policy demonstrates how racialized policies over the past several decades have shaped the acquisition of housing wealth, reverse mortgages represent an opportunity to examine how this wealth is managed, maintained, and transmitted (or not transmitted) to future generations. Existing racial disparities in wealth (Taylor, Kochhar, Fry, & Velasco, 2011) may make reverse mortgages particularly attractive to African American homeowners who are less likely to have other financial cushions to fall back on. Furthermore, the decision to take out a reverse mortgage may ultimately transfer equity from homeowner to financial institutions, preventing the transmission of wealth to future generations. Additionally, owing to wealth inequalities, black homeowners are often the most resourced members of larger social and family networks (Pattillo, 2000). As a result, reverse mortgage loans may have implications for network members who may reside in the home or depend on it during periods of housing instability. Family members who reside in a reverse mortgaged home may be forced to move when the homeowner passes away. Finally, reverse mortgages may be an important safety-net for older homeowners whose health may contribute to housing vulnerability (Keene, Lynch, & Baker, 2014). Indeed, recent research suggests that 15% of reverse mortgage seekers consider the loan as a way to offset health-related expenses (Moulton et al., 2017). A large literature documents the excess burden of morbidity and mortality experienced by black, relative to white, Americans as a result of racially stratified risks, opportunities, and threats to well-being (Geronimus & Thompson, 2004). These health inequalities may increase the demand for reverse mortgages among black homeowners. Methods This article draws on data from a qualitative study of older homeowners that was designed to examine reverse mortgage decision making and experiences among a racially and socioeconomically diverse sample of older homeowners. The study also sought to understand how racially stratified inequalities in health and wealth shaped decisions and experiences related to reverse mortgage loans. We recruited participants from three sites in New England: Boston, Massachusetts, New Haven, Connecticut and small towns adjacent to New Haven. Eligible participants were over the age of 62 and had secured or considered a reverse mortgage loan. To recruit a diverse sample of participants from this small and hidden population, we first posted flyers at a number of public locations, in a local newspaper and on Craigslist. This yielded a primarily white sample and only 20 participants. Five additional participants were recruited through snowball sampling. We then expanded our recruitment efforts by sending a mailing to the homes of homeowners over the age of 62: 500 black, 200 white, and 100 Latino. We obtained this list of homeowners from E-merges, a company that merges publicly available voter registration and demographic data. This mailing produced 20 interviews, a low return rate that was expected given the low prevalence of reverse mortgages. We also expect that stigma surrounding reverse loans contributed to our low response rate. The predatory reputation of reverse mortgages caused some participants to approach our study with caution. Others likely avoided it altogether. Though our sample is unlikely to be representative of all reverse mortgage holders, our goal was not to make population-level generalizations, but rather to examine a diversity of experiences. Our final sample consisted of 44 homeowners, 39 from the New Haven area and 5 from the Boston area. Twelve participants (7 black, 5 white) had received a reverse mortgage. Two participants (1 white and 1 Latino) had applied for reverse mortgage loans, but were denied. The other 30 participants (12 black, 17 white, and 1 Latina), were considering or had considered a reverse mortgage, but had not applied. The average age of the sample was 68. Thirty-two participants were female, 11 were male, and one husband–wife couple were interviewed together. Fifteen participants (9 black, 5 white, 1 Latino) had children or grandchildren living in their home. Interviews were conducted in late 2015 and early 2016. Most interviews were conducted in participants’ homes, though some took place in a university office or at a public location, and one took place over the phone. Interviews were semi-structured, relying on an interview guide that included broad and open-ended questions with follow-up probes. The interviews covered the following domains: personal background, home ownership, the motivation for reverse mortgage loan, the context of reverse mortgage loan, the loan application process, the loan experience, and health. Interviews lasted an average of 61 min. Thirteen interviews were conducted by the first author, 14 interviews by the third author, and the remaining interviews were conducted by two research assistants. We analyzed the interviews using an inductive and iterative approach. We wrote summaries following each interview to capture the participants’ essential story and to document emerging themes. We then drew on these summaries and transcripts to develop a preliminary code structure. Our codes divided the data into main categories (such as reverse mortgage decisions, reverse mortgage experiences, homeownership experiences), and also captured emerging themes (e.g., “reverse mortgage as last resort,” “uncertainty about the future”). The research team applied this preliminary code structure to a small sample of transcripts and discussed discrepancies, omissions, and redundancies. We repeated this process, iteratively refining the code structure over a series of meetings. The second and third author then applied a finalized code structure to all transcripts using Dedoose software. The analysis in this article focused on data related to the code “reverse mortgage decisions.” The first author read all excerpts associated with this main code and subcodes. This review led to a general dichotomous schema of reverse mortgages as “maximizing decisions” versus “loss prevention decisions.” The first author then re-read full transcripts to contextualize coded excerpts and to further refine the taxonomy of reverse mortgage decision making. Throughout the analysis of coded data and full transcript review, the first author wrote analytic memos and diagrams that were reviewed and discussed with the research team. In the analysis that follows, we select one case to illustrate each category of our taxonomy, to show the context that surrounded individual reverse mortgage decisions. We use pseudonyms to protect participants’ confidentiality. Strategically Maximizing Home Equity Some participants considered reverse mortgages as an opportunity to strategically maximize the equity they had accrued. They considered it as a “potential tool” to get the most out of homeownership. For some, this meant employing equity to finance nonessential expenses, or to alleviate financial burdens, thus improving their quality of life. Others considered reverse mortgages as an opportunity to finance current needs, while protecting nonhousing investments. Protecting or Growing Other Investments Sixty-three-year-old Simone provides an example of this strategic thinking. Simone was a single, white, female homeowner with one son who lived abroad. She described herself as financially comfortable, with income from regular employment, excellent health insurance, and the freedom of having paid off her mortgage years ago. At the time of the interview, she had begun to think about reverse mortgages as an option to finance travel. She explained, I’d like to spend more extended time [abroad], which could be costly. It’s—I’m grateful for having the asset of the house and thinking like I might wanna convert it into that free money for that travel. Or—I mean, I have other money that I can leave to him [her son], but I think what informs my decision is I can let my other financial investments stay and grow, but this is money that I could use more immediately for my travel. In thinking strategically about how to finance her travel, Simone considered the benefit of protecting her current nonhousing investments, while drawing on her home equity through a reverse mortgage. She reasoned, later in the interview, that these other investments were appreciating faster than her home. By drawing on her home’s equity while living in it, she could “let [her] other financial investments stay and grow.” Simone noted that she initially did not think of reverse mortgages as relevant to someone in her position. She explained, “When I first heard about it, I think my initial reaction was, ‘Oh that’s what people with no children do.’ And then my second reaction was, ‘Well that’s what people who haven’t saved money do.’ I’m not in that position.” She explained that reverse mortgages were marketed as a “rescue plan,” which she did not need. Yet she saw them as a potentially useful way to “convert an asset into immediate income.” At the time of the interview, Simone had still not decided to pursue a reverse mortgage. However, because she was considering a reverse mortgage as a strategic tool, rather than a “rescue plan,” she was able to weigh all of her options carefully before making a decision. Like Simone, Cathy, a 72-year-old black homeowner, considered a reverse mortgage as an opportunity to grow a current investment: the value of her home. Cathy had a pension, social security income, and some part-time employment, but described the cost of living as increasingly burdensome. Additionally, Cathy was providing ongoing financial support to a family member. The margins of her budget were tight. By strategically using the reverse mortgage to augment the value of her home, she reasoned that it would do better on the market if she ever needed to sell it, thus granting her greater flexibility with regards to future residential options. She explained, “… that house now will be up there [worth more], and I plan to stay at least three to four years, depending on health, and whatever I sell it for, pay them back, and I take the rest.” Cathy had applied for a traditional home equity loan and had been denied. Therefore, she considered the reverse mortgage her only option for financing the renovations. She received the reverse mortgage proceeds in two lump sums which she spent within the first few years of taking out the loan. Though Cathy was a bit disappointed by how quickly the money ran out, she described the loan as giving her options that she wouldn’t otherwise have had. She also noted that the reverse mortgage allowed her to “enjoy [her] own equity,” a theme found in other interviews as well. Enjoying One’s Equity Cheryl was a 68-year-old single white homeowner who had one child. She was fairly comfortable financially and was considering a reverse mortgage as a way to enjoy her equity, using it to finance voluntary expenses that fell outside her regular budget. She explained, “Maybe in the last year or so, I started thinking about it more so because I would like to have my bathroom done over. And I said, you know, well maybe this is a good way to get some cash. Because I’m not planning on moving anyplace.” She mentioned that she would also like to use the reverse mortgage to “have a nice vacation.” Like Cathy, Cheryl did not see an alternative to increasing her liquid assets, noting that payments associated with a traditional home equity loan would be too burdensome on her fixed income. Cheryl had not yet decided whether to take out a reverse mortgage. However, like Simone, she was able to think strategically because she was not in a desperate financial situation. Relieving a Burden For some participants, reverse mortgages represented an opportunity to relieve financial burdens, and thus enhance their quality of life. For example, 76-year-old Tony, a widowed white homeowner, decided to take out a reverse mortgage after his wife passed away, to relieve the burden of a mortgage payment that he could afford, but not comfortably. He explained, “I wanted to get the burden of the house off of my shoulders if I could because no one else wanted it [the house]. So obviously what the hell—why am I fighting for this house? When the time comes they carry me out of here, nobody wants it anyway. So why not make my life easier? And that’s the decision that I made.” In deciding to draw on his home equity, Tony also considered the fact that his children were financially comfortable and did not need or want his home. After paying off his existing mortgage, Tony received approximately $55,000 from the reverse mortgage, which he used to finance a vacation and other monthly expenses until the money ran out a few years later. Relieved from the burden of mortgage payments, even after the money from the loan ran out, he was able to comfortably make ends meet with income from social security, part-time employment, and payments from the tenants who rented his spare rooms. Though Tony was generally satisfied with his reverse mortgage, he did have some reservations about giving up equity in the form of fees and interest, especially since he could have afforded to continue paying his mortgage. However, he decided that the loss of equity was ultimately worth the opportunity to maximize his quality of life. He explained, “But by the same token, so it cost me $15,000 [fees and closing costs], but for how many more years did I not have a mortgage? All I had to do was pay the insurance on the place, and the taxes and that was it. You know, it was that simple. It took a hell of a burden off your shoulders.” Like other participants who considered reverse mortgage as a maximizing strategy, Tony was in a position to weigh the trade-offs of the loan and make the decision that fit with his needs. Beverly, a 76-year-old black homeowner, like Tony, also took out a reverse mortgage to relieve a financial burden. However, unlike Tony, she ultimately regretted this decision. Beverly had paid off her mortgage more than a decade earlier. She was not in dire financial straits, but experienced “a little struggle.” Beverly initially tried to relieve this struggle by selling her home, but received only one offer that was too low. She cited the negative reputation of her predominantly black and low-income neighborhood as one reason for the lack of interested buyers. When she determined that selling wasn’t an option, Beverly turned to the reverse mortgage. She received approximately $60,000 in cash from the loan and soon had to draw on these funds to address unexpected home-related expenses. She regretted that the money she obtained from the house was being “poured back into it.” At the same time, Beverly’s knees started to bother her, making the two-floor home less manageable. She explained, “I didn’t really think that my mind would change that fast about trying to get into a senior citizen [senior apartment], or whatever, until I really started having problems with my knees. I started thinking, ‘What did I do?’” However, Beverly realized that even if she sold the house, she wouldn’t have anything left over after paying back the initial loan in addition to fees and interest. While for some participants the reverse mortgage provided a sense of stability, Beverly described it as locking her into a situation that wasn’t adaptable to her changing needs. Though the reverse mortgage effectively relieved some of Beverly’s financial burden, it also represented the loss of a home she had worked hard to pay off. As she summarized: “I wasn’t happy with myself after I did it, you know, but I did it … the interest just keep going up, up, up. In that way, you’ll never be able to claim your home back because you already signed it over, and you’re not paying them anything; it’s theirs. But then you live free, you know, you just pay the taxes and the insurance and the keep-up with it.” Structurally Determined Decision-Making Landscapes While these participants present a number of different motivations for considering a reverse mortgage, their stories all point to reverse mortgages as strategic tools employed to get the most out of their home equity. In thinking strategically, they weighed the available options and carefully considered trade-offs. For some participants who considered a reverse mortgage from a position of strategic maximizing, trade-offs in the form of high fees or the inability to pass on the home to heirs were too large, leading them to ultimately decide against the reverse mortgage. While there were similarities in the strategic thinking that these maximizing participants reported, there were also important differences. Some, like Cathy, maximized out of necessity given tight budgetary margins. Cathy needed to get the most out of her home equity because she had nothing to spare. Not only was she living on a tight budget, but she also had family members who depended on her. Others, like Tony, could afford to sacrifice some equity for the sake of making life easier because they had other family and personal resources to fall back on. Likewise, while Tony’s resources gave him flexibility with regards to future options, for Beverly, the reverse mortgage was constraining. With all her assets tied up in her home, she was unable to move elsewhere. These decision-making landscapes were likely, at least in part shaped by a wide range of racially structured inequalities. Vast racial inequalities in wealth (Taylor et al., 2011) meant that participants like Cathy and Beverly had fewer resources to turn too and more people dependent on them. Racially structured real estate markets (Rugh & Massey, 2010) and the stigmatization of her predominantly black neighborhood (Keene & Padilla, 2014) likely limited Beverly’s ability to sell her home. Racial disparities in access to credit may have also shaped the lending options available to participants. After all, Cathy first sought a traditional home equity loan before turning to her reverse mortgage. Loss Prevention While some participants considered reverse mortgages strategically, others turned to this loan when they faced unmanageable expenses and the imminent loss of their homes to foreclosure. Participants in these situations were often aware of the potential downsides of reverse mortgages, noting that they would not have chosen this route if another option had been available. Protecting Against Health-Related Loss Rebecca, a 68-year-old black and married homeowner, was considering a reverse mortgage. Her husband was undergoing treatment for cancer and they were struggling to pay their mortgage and his medical expenses. They were receiving assistance to pay for his prescriptions through a charity, but Rebecca was unsure how long the assistance would continue. She explained that without it assistance, they would have to draw on their home equity noting, “If they tell us no, that we can’t help you [with the prescriptions] or we can only help you to a certain extent, then we’re going to take money out from the house to pay for it because we have to.” She also explained that traditional home equity loans were not an option because the monthly loan payments would be unaffordable. The reverse mortgage offered Rebecca a potential escape from an untenable situation, but she considered it only as a last resort. Like Rebecca, several other participants considered a reverse mortgage when a health crisis resulted in financial hardship. For example, Walter, a 67-year-old single white homeowner, took out a reverse mortgage when faced with the loss of his home after a long hospital stay. During his several months in the hospital, Walter fell behind on his bills and his property taxes. When he came home from the hospital, he found out that his house was already up for auction as a tax foreclosure. He worked with a lawyer to get his house back but was required to pay a large sum of money that he did not have. He explained, “So my attorney negotiated and said, ‘Well, you can get the house back,’ but now over $100,000.00 was what I had to pay the people that took the house in fees and services to get the house back in my name. So I took—that’s when the reverse mortgage came in.” Walter received a short-term reverse mortgage from a state program. The loan provided him with $130,000 ($100,000 of which went to pay the fees to repossess his house). At the time of the interview, Walter was living comfortably in his home and felt that he had options to either stay or sell. He credited the reverse mortgage with saving his home and allowing him to “make the best of a bad situation,” but also described its downsides. He explained, “I wouldn’t recommend a reverse mortgage as the first choice to anybody, cause the upfront fees are enormous and I have to pay stinking mortgage insurance, which is really a huge cost of that loan.” Despite these downsides of the reverse mortgage, Walter explained, “I had no other option. I had no other option. Get out or do this.” Giving Up One’s Home in Order to Keep It Adanna, a 67-year-old widowed black homeowner, also secured a reverse mortgage in order to avoid foreclosure. Adana had quit her job to take care of her dying husband and could no longer afford the mortgage and the taxes. Adanna used the reverse mortgage to pay off back-taxes and her remaining mortgage and was left with $10,000, which primarily went to pay off other bills. Though the funds from the reverse mortgage helped Adanna recover from a financial crisis, they only temporarily resolved her financial challenges. Five years after taking out the reverse mortgage, she described ongoing concerns about losing the home to foreclosure. Adanna repeatedly referred to the importance of keeping her home as a place of shelter for herself, and also for her daughter and grandchildren who lived with her. She explained, “All in my mind was that I had to keep this home for a bit. I had to. I couldn’t let it go. Where would we go?” While Adanna took out the reverse mortgage to preserve her multi-generational household, she was also aware that the loan posed a threat to her children and grandchildren’s ability to live there. She explained, “But say, like if I die today or tomorrow, if my kids don’t pay off what I owe them, they can’t live here. They have to move.” In this sense, Adanna was giving up her home, as both an asset and source of shelter for her heirs, in order to keep it temporarily. Penelope, a 76-year-old widowed white homeowner, also took out a reverse mortgage when she had no other options to save her multigenerational household from foreclosure. Penelope lived with her adult grandson who had health issues. Before taking out the reverse mortgage, she had lost her job and fallen behind on her property taxes. She explained, “It was at the end where I was gonna be probably evicted because they went through the whole process and I didn’t know what to do, so that’s why I decided to do that … I couldn’t think of another way to get out of my predicament.” While the reverse mortgage helped Penelope out of her “predicament,” it was also something that she deeply regretted. She was distressed about having a loan on the house, explaining, “I owe a lot. Now there’s a mortgage on the house, and I don’t want there—I worked all my life not to have a mortgage on the house. I don’t want to have it, but I have no way to get rid of it, because I’m old.” After taking out the reverse mortgage, Penelope continued to struggle financially with high property taxes and medical expenses. Like Adanna, Penelope described the reverse mortgage as a temporary solution that did not resolve the root cause of her financial troubles. She explained, “Well, it was only a temporary fix. It didn’t get me—it didn’t really get me out of a predicament, because it just made me go from one predicament to another one.” Structurally Determined Landscapes of Loss Prevention In the above examples of loss prevention, the reverse mortgage was an option of last resort. In Walter’s case, it served as a last-resort option that effectively resolved a financial crisis. However, in other cases, the reverse mortgage was only a temporary fix, and also had potential long-term consequences. Participants described giving up homes that their families relied on for shelter, to be able to stay in them for a little bit longer. Additionally, for some participants, their homes were their only assets; assets that they had hoped to pass on to their heirs. Both Penelope (white) and Adanna (black) described similar experiences of giving up their homes in order to keep them, suggesting a vulnerability shared across racial groups. However, on a population-level, racial inequalities in wealth and health that place black homeowners at disproportionate risk of foreclosure may contribute to racial disparities in the use of reverse mortgages as foreclosure prevention tools (Keene et al., 2014). Discussion Our qualitative interviews illustrate that reverse mortgages play varying roles and have varying benefits and consequences depending on the context in which they are considered or secured. They can be both tools for strategically maximizing equity or last-resort attempts to avoid loss. This dichotomy of decision making illustrates how reverse mortgages may, in some respects, offer the most benefit to those with more resources, potentially exacerbating existing inequalities. In particular, Simone described the reverse mortgage as an opportunity to grow her existing investments. Survey research indicates that Simone’s story is not unique. In their large survey study of homeowners considering a reverse mortgage, Moulton and colleagues (2017) find that 15% of those seeking reverse mortgage counseling were considering the loan as an opportunity to postpone drawing on other investments. This strategy has also been promoted in recent financial planning literature (Pfeiffer, Schaal, & Salter, 2014). In contrast to those who considered a reverse mortgage as an opportunity to grow their wealth, for others, it represented a depletion of their only asset. Though a reverse mortgage may help individuals avoid foreclosure temporarily, our data suggest that it may ultimately fail to resolve budgetary shortfalls. Indeed, nearly 20% of reverse mortgages originated between 2009 and 2016 are expected to default and result in foreclosure (U.S. Department of Housing and Urban Development, 2016). Regardless of default, reverse mortgages can ultimately transfer home equity to financial institutions after the borrower passes away. This process prevents the transmission of housing wealth to the next generation and as a result may contribute to intergenerational wealth inequality. Our data did not display clear racial patterns. Both black and white homeowners were present among strategic maximizers and among loss minimizers, likely reflecting the socioeconomic heterogeneity of our sample across race. However, participants’ stories did allude to the ways in which racially structured constraints and opportunities may have contributed to their decision making. They described challenges selling their home, accessing other forms of credit, and health and wealth vulnerabilities that are likely connected to an ongoing history of discrimination and discriminatory social and economic policies. Other research has described the way that these forms of structural racism contribute to the fragility of black homeownership and the risk of foreclosure (Keene et al., 2014; Libman et al., 2012). These racially structured constraints and opportunities may similarly contribute to the need for reverse mortgages as foreclosure prevention tools among black homeowners. Furthermore, by transferring wealth from black families to banks, reverse mortgages may exacerbate existing racial inequalities in wealth and represent yet another example of dispossession and serial displacement of black communities that has occurred across generations and policies, from urban renewal to the recent foreclosure crisis (Fullilove & Wallace, 2011). To better understand the implications of this loan product for racial inequalities, future research should compare reverse mortgage motivations and outcomes across racial groups, using larger and more representative samples of homeowners. Despite the risks and consequences associated with reverse mortgages, it is important to note that they can provide an option when none other exists. In our sample, reverse mortgages allowed some participants to stay in their homes longer than they would have otherwise been able. One story that is missing from our analysis is the experience of homeowners for whom even this last resort option was not available because they did not have enough equity to qualify for a reverse mortgage. Recent survey data find that one third of counseled homeowners report being ineligible for reverse mortgages and also suggest that black homeowners are disproportionately represented in this group (Moulton et al., 2017). While reverse mortgages may have created an option for foreclosure prevention, our data suggest that they were not effective long-term safety-nets for addressing income shortfalls and health expenses that older adults commonly experience. In the United States, the financing of retirement expenses through personal equity is part of a growing trend away from guaranteed income supports through defined pension plans; a trend that has contributed to the financial vulnerability of older adults (O’Rand, 2003). As other work suggests, this lack of safety-net may contribute to the fragility of homeownership for older Americans (Cutshaw, Woolhandler, Himmelstein, & Robertson, 2016; Houle & Keene, 2015). Reverse mortgages may be a strategy through which socioeconomically disadvantaged, older American adults navigate both a limited social safety-net and the housing fragility that it produces. Our findings may be shaped not only by this broader U.S. policy context, but also by the local contexts of Connecticut and Massachusetts where housing costs are relatively high. Notably, our findings suggest that the inequality we observe is not likely to be resolved through improvements in education about reverse mortgage loans. The majority of participants in our study were well-informed about the terms of the loans they considered or secured. Some took out these loans, despite known trade-offs, because they had no other options. Nonetheless, asymmetrical access to information may exacerbate the unevenness of the decision-making process that we observe. Our findings must be interpreted in light of a few limitations. First, the challenges of locating reverse mortgage holders, a small and hidden population to discuss a potentially stigmatizing topic, constrained our sample size and also our ability to sample purposively. We were not able to strategically select participants to maximize diversity. Though our analysis suggests we reached saturation on many key themes, we cannot be sure that we captured the full diversity of reverse mortgage decision making and experiences. Second, as with all interview studies, our data are limited by what participants chose to relay to us. To better capture participants’ actual experiences, we focused our analysis and data collection on concrete examples that are more likely to be trustworthy than generalized statements (Weiss, 1998). Despite its limitations, this study represents one of the first qualitative and in-depth examinations of reverse mortgage decision making, improving our understanding of how this loan operates to affect older homeowners and their families. Beyond reverse mortgages, our analysis sheds light on the way that social inequalities can be reproduced, through financial decisions and the unequal landscapes of opportunity in which they are made. Funding This work was supported by funding from the Russell Sage Foundation. Conflict of Interest None reported. Acknowledgments We would like to thank Adam Eldahan and Grace Park for their important contributions to this project. We also thank the Russell Sage Foundation for providing funding for this work. Finally, we gratefully acknowledge the research participants who shared their stories with us. References Bishop , T. , & Shan , H . ( 2008 ). Reverse mortgages: A closer look at HECM loans (pp. 1 – 51 ). Washington, DC: National Bureau for Economic Research . Coates , T.-N . ( 2014 ). The case for reparations: An intellectual autopsy . Retrieved May 27, 2014, from http://www.theatlantic.com/business/archive/2014/05/the-case-for-reparations- an-intellectual-autopsy/371125/ Consumer Financial Protection Bureau . ( 2012 ). Reverse mortgages: Report to Congress . Retrieved May 28, 2014, from http://files.consumerfinance.gov/a/assets/documents/201206_cfpb_Reverse_Mortgage_Report.pdf Cutshaw , C. A. , Woolhandler , S. , Himmelstein , D. U. , & Robertson , C . ( 2016 ). Medical causes and consequences of home foreclosures . International Journal of Health Services: Planning, Administration, Evaluation , 46 , 36 – 47 . doi: 10.1177/0020731415614249 Google Scholar CrossRef Search ADS PubMed Fullilove , M. T. , & Wallace , R . ( 2011 ). Serial forced displacement in American cities, 1916–2010 . 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An analysis of default risk in the Home Equity Conversion Mortgage (HECM) program . Journal of Urban Economics , 90 , 17 – 34 . doi: 10.1016/j.jue.2015.08.002 Google Scholar CrossRef Search ADS Moulton , S. , Loibl , C. , & Haurin , D ., ( 2017 ). Reverse mortgage motivations and outcomes: Insights from survey data . Cityscape , 19 , 73 – 98 . Newman , K . ( 2009 ). Post-industrial widgets: Capital flows and the production of the urban . International Journal of Urban and Regional Research , 33 , 314 – 331 . doi:10.1111/j.1468-2427.2009.00863.x Google Scholar CrossRef Search ADS Oliver , M. , & Shapiro , T . ( 2006 ). Black wealth, white wealth: A new perspective on racial inequality . New York : Routledge . O’Rand , M . ( 2003 ). The future of the life course . In Handbook of the lifecourse (pp. 693 – 698 ). J. Mortimer & M. Shanahan , Ed. New York : Springer . Google Scholar CrossRef Search ADS Pattillo , M . ( 2000 ). Black picket fences: Privilege and peril among the black middle class . Chicago : University of Chicago Press . Pattillo , M . ( 2013 ). Housing: Commodity versus right . Annual Review of Sociology , 39 , 509 – 531 . doi: 10.1146/annurev-soc-071312-145611 Google Scholar CrossRef Search ADS Pfeiffer , S. , Schaal , C. , & Salter , J . ( 2014 ). HECM reverse mortgages: Now or last resort ? Journal of Financial Planning . 27 , 44 – 51 . Prevost , L . ( 2014 , April 13). Reverse mortgage realities—NYTimes.com . New York, NY: New York Times . Redfoot , D. , Scholen , K. , & Brown , S. K . ( 2007 ). Reverse mortgages: Niche product or mainstream solution? Report on the 2006 AARP National Survey of Reverse Mortgage Shoppers . AARP Report, 22. Washington, DC: AARP . Rugh , J. S. , & Massey , D. S . ( 2010 ). Racial segregation and the American foreclosure crisis . American Sociological Review , 75 , 629 – 651 . doi: 10.1177/0003122410380868 Google Scholar CrossRef Search ADS PubMed Shan , H . ( 2011 ). Reversing the trend: The recent expansion of the reverse mortgage market . Real Estate Economics , 39 , 743 – 768 . doi: 10.1111/j.1540-6229.2011.00310.x Google Scholar CrossRef Search ADS Taylor , P. , Kochhar , R. , Fry , R. , Velasco , G. , & Motel , S . ( 2011 ). Wealth gaps rise to record highs between whites, blacks and Hispanics . Washington, DC : Pew Research Center , 37. U.S. Department of Housing and Urban Development . ( 2016 ). Actuarial review of the Federal Housing Administration Mutual Mortgage Insurance Fund, HECM loans for Fiscal Year 2016 . Retrieved from https://www.hud.gov/sites/documents/ACTUARIALMMIFHECM2016.PDF Weiss , R . ( 1998 ). Learning from strangers . New York : Free Press . Williams , R. , Nesiba , R. , & McConnell , E . ( 2005 ). The changing face of inequality in home mortgage lending . Social Problems , 52 , 181 – 208 . doi: 10.1525/sp.2005.52.2.181 Google Scholar CrossRef Search ADS © The Author(s) 2018. 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Maximizing Home Equity or Preventing Home Loss: Reverse Mortgage Decision Making and Racial Inequality

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Abstract Background and Objectives Reverse mortgages are loans that allow older homeowners to borrow from their home equity with no repayment due until the borrower dies or moves out of the home. We currently know very little about how homeowners evaluate and experience reverse mortgages as solutions to their financial and housing needs in later life. Furthermore, despite an increasingly diverse population of reverse mortgage borrowers, we know little about how social inequalities may contribute to reverse mortgage decisions and their outcomes. In this paper, we examine reverse mortgage decision-making and experiences in a racially and economically diverse sample of older US homeowners. Research Design and Methods We conducted 44 in-depth interviews with older homeowners who were considering or who had obtained a reverse mortgage loan. We inductively and iteratively developed a thematic coding scheme that was applied to all interview transcripts. Results Our analysis produced a dichotomous schema of reverse mortgage decision making that was shaped by social and economic opportunities and constraints. For some participants, reverse mortgages represented strategic tools used to maximize home equity and its benefits. For others, it was an option of last resort to which participants turned when faced with the imminent loss of their home. Discussion and Implications Focusing on reverse mortgages, our analysis suggests way that social inequalities may be reproduced through financial decisions and the unequal landscapes of opportunity in which they are made. Housing, Disparities, Race, Qualitative research, Sociology of aging, Policy Reverse mortgages are loans that allow older homeowners to borrow from the accumulated value of their homes (home equity) with no repayment due until the borrower dies or moves out of the home. They provide an opportunity for older homeowners to stay in their current home, while simultaneously drawing on their home equity to meet daily expenses. Some have lauded reverse mortgages as an opportunity for older homeowners to affordably age in place (Prevost, 2014). However, others have criticized these loans as a form of predatory lending that involves high fees and interest rates, extracting large amounts of equity from borrowers who are often in precarious financial positions (Consumer Financial Protection Bureau, 2012). We currently know very little about how homeowners evaluate reverse mortgages as an option and experience this loan as a solution to their financial and housing needs in later life. Furthermore, despite an increasingly diverse population of reverse mortgage borrowers (Bishop & Shan, 2008; Shan, 2011), we know little about how social context and existing social inequalities may contribute to reverse mortgage decisions and their outcomes. In particular, racial inequalities in wealth, health, and access to credit may shape reverse mortgage decision making, as well as the risks and benefits of this loan option. While previous literature has examined how differential access to credit contributes to racial inequalities in wealth (Coates, 2014; Libman, Fields, & Saegert, 2012; Oliver & Shapiro, 2006), in this article, we consider whether a given loan product, the reverse mortgage, can have unequal consequences depending on the circumstance that surrounds it. Specifically, we draw on in-depth interviews conducted with a racially and economically diverse sample of older U.S. homeowners who were considering or who had obtained a reverse mortgage loan to examine reverse mortgage decision making and experiences. Beyond expanding our understanding of reverse mortgage loans, our analysis sheds light on how homeowners navigate unequal landscapes of constraints and opportunities in later life. Reverse Mortgages: Background and Existing Research The most common type of reverse mortgage in the United States is the Home Equity Conversion Mortgage (HECM). HECM loans, which are administered and insured by the U.S. Department of Housing and Urban Development (HUD), constituted nearly 100% of new reverse mortgage loan originations between 2008 and 2014 (Moulton, Haurin & Shi, 2015). HECM loans are available to individuals who are aged 62 or older and who have either paid off their mortgage, or who have small remaining loan balances. Recipients of HECM loans can choose to receive either a lump sum payment, monthly payments, or a line of credit. Borrowers pay a monthly service fee and interest, which are both deducted from their equity. While HECM holders are not required to make loan payments, they are required to maintain their property and pay local real estate taxes. A significant portion (10%) of reverse mortgage loans default as a result of unpaid taxes or insurance premiums (Consumer Financial Protection Bureau, 2012; Moulton et al., 2015). When the reverse mortgage holder dies, heirs have the option to sell the home (within 6 months) or purchase the home by paying off the loan or 95% of the home’s current assessed value. Otherwise, the lending institution takes possession of the property. Though only 2% of U.S. homeowners currently have a reverse mortgage loan (Moulton, Loibl, & Haurin, 2017), rates of reverse mortgages have risen and are expected to rise in the future as aging baby boomers enter retirement with fewer savings and more debt than previous generations (Moulton et al., 2017). An increasing proportion of older adults in the U.S. carry mortgage debt. For example, among homeowners over the age of 65, the portion of carrying mortgage debt increased from 22% to 30% between 2001 and 2011 (Moulton, Loibl, & Haurin, 2017). Additionally, a declining prevalence of defined-benefit pension plans that provide retirees with guaranteed income supports has increased the financial vulnerability of older homeowners (Li, Burr, & Miller, 2017; O’Rand, 2003). Some evidence suggests that the demographics of reverse mortgage borrowers are also shifting, with an increasing prevalence of younger and nonwhite borrowers (Consumer Financial Protection Bureau, 2012; Shan, 2011). However, given that reverse mortgage loans are relatively uncommon, it is difficult to gain information about reverse mortgage borrowers from nationally representative surveys. Furthermore, loan-level administrative data from HUD contain limited information about the characteristics of borrowers. Only a few recent studies have used survey data to examine both the characteristics and motivations of reverse mortgage borrowers (Moulton et al., 2017; Redfoot, Scholen, & Brown, 2007). Most recently, Moulton and colleagues (2017) analyzed survey data from nearly 1,800 older homeowners who had received counseling for reverse mortgage loans. The authors also compared demographic and financial characteristics of households that received reverse mortgage counseling to the population of older U.S. homeowners more broadly. Survey participants considering reverse mortgages were more likely than the general population of homeowners to have mortgage debt. Relative to the general population of homeowners, reverse mortgage seekers were also more likely to be black. The study found that the most common motivation for seeking a reverse mortgage was to gain extra income for everyday expenses. While these survey data provide some information about reverse mortgage borrowers, more research is needed to elucidate the decision-making processes and contexts that underlie reverse mortgage borrowing. To our knowledge, only one qualitative study has examined reverse mortgage decision making decision making (Leviton, 2002) and this study is limited to a sample of predominantly white borrowers. Research is needed to capture the experiences of nonwhite homeowners who represent an increasing portion of reverse mortgage seekers, and who may confront racially structured risks and opportunities that contribute to their decisions and experiences. This article extends the existing literature by examining the experiences of both black and white homeowners. Housing Policy and Inequalities in Health and Wealth Housing policy has played an important role in creating the large wealth inequalities that exist between black and white Americans (Coates, 2014; Oliver & Shapiro, 2006; Pattillo, 2013). In particular, policies that first denied African Americans access to credit, and then granted it to them on unequal terms, have contributed to racial inequalities in housing wealth (Williams, Nesiba, & McConnell, 2005). Before 1970s, many African Americans were denied mortgages as a result of redlining practices which designated many predominantly African American neighborhoods as too risky for government-backed Federal Housing Administration (FHA) home mortgage loans (Newman, 2009; Rugh & Massey, 2010). In the post-redlining era, risky subprime loan products such as adjustable rate mortgages were disproportionately marketed to African American borrowers (Rugh & Massey, 2010). While existing research on housing policy demonstrates how racialized policies over the past several decades have shaped the acquisition of housing wealth, reverse mortgages represent an opportunity to examine how this wealth is managed, maintained, and transmitted (or not transmitted) to future generations. Existing racial disparities in wealth (Taylor, Kochhar, Fry, & Velasco, 2011) may make reverse mortgages particularly attractive to African American homeowners who are less likely to have other financial cushions to fall back on. Furthermore, the decision to take out a reverse mortgage may ultimately transfer equity from homeowner to financial institutions, preventing the transmission of wealth to future generations. Additionally, owing to wealth inequalities, black homeowners are often the most resourced members of larger social and family networks (Pattillo, 2000). As a result, reverse mortgage loans may have implications for network members who may reside in the home or depend on it during periods of housing instability. Family members who reside in a reverse mortgaged home may be forced to move when the homeowner passes away. Finally, reverse mortgages may be an important safety-net for older homeowners whose health may contribute to housing vulnerability (Keene, Lynch, & Baker, 2014). Indeed, recent research suggests that 15% of reverse mortgage seekers consider the loan as a way to offset health-related expenses (Moulton et al., 2017). A large literature documents the excess burden of morbidity and mortality experienced by black, relative to white, Americans as a result of racially stratified risks, opportunities, and threats to well-being (Geronimus & Thompson, 2004). These health inequalities may increase the demand for reverse mortgages among black homeowners. Methods This article draws on data from a qualitative study of older homeowners that was designed to examine reverse mortgage decision making and experiences among a racially and socioeconomically diverse sample of older homeowners. The study also sought to understand how racially stratified inequalities in health and wealth shaped decisions and experiences related to reverse mortgage loans. We recruited participants from three sites in New England: Boston, Massachusetts, New Haven, Connecticut and small towns adjacent to New Haven. Eligible participants were over the age of 62 and had secured or considered a reverse mortgage loan. To recruit a diverse sample of participants from this small and hidden population, we first posted flyers at a number of public locations, in a local newspaper and on Craigslist. This yielded a primarily white sample and only 20 participants. Five additional participants were recruited through snowball sampling. We then expanded our recruitment efforts by sending a mailing to the homes of homeowners over the age of 62: 500 black, 200 white, and 100 Latino. We obtained this list of homeowners from E-merges, a company that merges publicly available voter registration and demographic data. This mailing produced 20 interviews, a low return rate that was expected given the low prevalence of reverse mortgages. We also expect that stigma surrounding reverse loans contributed to our low response rate. The predatory reputation of reverse mortgages caused some participants to approach our study with caution. Others likely avoided it altogether. Though our sample is unlikely to be representative of all reverse mortgage holders, our goal was not to make population-level generalizations, but rather to examine a diversity of experiences. Our final sample consisted of 44 homeowners, 39 from the New Haven area and 5 from the Boston area. Twelve participants (7 black, 5 white) had received a reverse mortgage. Two participants (1 white and 1 Latino) had applied for reverse mortgage loans, but were denied. The other 30 participants (12 black, 17 white, and 1 Latina), were considering or had considered a reverse mortgage, but had not applied. The average age of the sample was 68. Thirty-two participants were female, 11 were male, and one husband–wife couple were interviewed together. Fifteen participants (9 black, 5 white, 1 Latino) had children or grandchildren living in their home. Interviews were conducted in late 2015 and early 2016. Most interviews were conducted in participants’ homes, though some took place in a university office or at a public location, and one took place over the phone. Interviews were semi-structured, relying on an interview guide that included broad and open-ended questions with follow-up probes. The interviews covered the following domains: personal background, home ownership, the motivation for reverse mortgage loan, the context of reverse mortgage loan, the loan application process, the loan experience, and health. Interviews lasted an average of 61 min. Thirteen interviews were conducted by the first author, 14 interviews by the third author, and the remaining interviews were conducted by two research assistants. We analyzed the interviews using an inductive and iterative approach. We wrote summaries following each interview to capture the participants’ essential story and to document emerging themes. We then drew on these summaries and transcripts to develop a preliminary code structure. Our codes divided the data into main categories (such as reverse mortgage decisions, reverse mortgage experiences, homeownership experiences), and also captured emerging themes (e.g., “reverse mortgage as last resort,” “uncertainty about the future”). The research team applied this preliminary code structure to a small sample of transcripts and discussed discrepancies, omissions, and redundancies. We repeated this process, iteratively refining the code structure over a series of meetings. The second and third author then applied a finalized code structure to all transcripts using Dedoose software. The analysis in this article focused on data related to the code “reverse mortgage decisions.” The first author read all excerpts associated with this main code and subcodes. This review led to a general dichotomous schema of reverse mortgages as “maximizing decisions” versus “loss prevention decisions.” The first author then re-read full transcripts to contextualize coded excerpts and to further refine the taxonomy of reverse mortgage decision making. Throughout the analysis of coded data and full transcript review, the first author wrote analytic memos and diagrams that were reviewed and discussed with the research team. In the analysis that follows, we select one case to illustrate each category of our taxonomy, to show the context that surrounded individual reverse mortgage decisions. We use pseudonyms to protect participants’ confidentiality. Strategically Maximizing Home Equity Some participants considered reverse mortgages as an opportunity to strategically maximize the equity they had accrued. They considered it as a “potential tool” to get the most out of homeownership. For some, this meant employing equity to finance nonessential expenses, or to alleviate financial burdens, thus improving their quality of life. Others considered reverse mortgages as an opportunity to finance current needs, while protecting nonhousing investments. Protecting or Growing Other Investments Sixty-three-year-old Simone provides an example of this strategic thinking. Simone was a single, white, female homeowner with one son who lived abroad. She described herself as financially comfortable, with income from regular employment, excellent health insurance, and the freedom of having paid off her mortgage years ago. At the time of the interview, she had begun to think about reverse mortgages as an option to finance travel. She explained, I’d like to spend more extended time [abroad], which could be costly. It’s—I’m grateful for having the asset of the house and thinking like I might wanna convert it into that free money for that travel. Or—I mean, I have other money that I can leave to him [her son], but I think what informs my decision is I can let my other financial investments stay and grow, but this is money that I could use more immediately for my travel. In thinking strategically about how to finance her travel, Simone considered the benefit of protecting her current nonhousing investments, while drawing on her home equity through a reverse mortgage. She reasoned, later in the interview, that these other investments were appreciating faster than her home. By drawing on her home’s equity while living in it, she could “let [her] other financial investments stay and grow.” Simone noted that she initially did not think of reverse mortgages as relevant to someone in her position. She explained, “When I first heard about it, I think my initial reaction was, ‘Oh that’s what people with no children do.’ And then my second reaction was, ‘Well that’s what people who haven’t saved money do.’ I’m not in that position.” She explained that reverse mortgages were marketed as a “rescue plan,” which she did not need. Yet she saw them as a potentially useful way to “convert an asset into immediate income.” At the time of the interview, Simone had still not decided to pursue a reverse mortgage. However, because she was considering a reverse mortgage as a strategic tool, rather than a “rescue plan,” she was able to weigh all of her options carefully before making a decision. Like Simone, Cathy, a 72-year-old black homeowner, considered a reverse mortgage as an opportunity to grow a current investment: the value of her home. Cathy had a pension, social security income, and some part-time employment, but described the cost of living as increasingly burdensome. Additionally, Cathy was providing ongoing financial support to a family member. The margins of her budget were tight. By strategically using the reverse mortgage to augment the value of her home, she reasoned that it would do better on the market if she ever needed to sell it, thus granting her greater flexibility with regards to future residential options. She explained, “… that house now will be up there [worth more], and I plan to stay at least three to four years, depending on health, and whatever I sell it for, pay them back, and I take the rest.” Cathy had applied for a traditional home equity loan and had been denied. Therefore, she considered the reverse mortgage her only option for financing the renovations. She received the reverse mortgage proceeds in two lump sums which she spent within the first few years of taking out the loan. Though Cathy was a bit disappointed by how quickly the money ran out, she described the loan as giving her options that she wouldn’t otherwise have had. She also noted that the reverse mortgage allowed her to “enjoy [her] own equity,” a theme found in other interviews as well. Enjoying One’s Equity Cheryl was a 68-year-old single white homeowner who had one child. She was fairly comfortable financially and was considering a reverse mortgage as a way to enjoy her equity, using it to finance voluntary expenses that fell outside her regular budget. She explained, “Maybe in the last year or so, I started thinking about it more so because I would like to have my bathroom done over. And I said, you know, well maybe this is a good way to get some cash. Because I’m not planning on moving anyplace.” She mentioned that she would also like to use the reverse mortgage to “have a nice vacation.” Like Cathy, Cheryl did not see an alternative to increasing her liquid assets, noting that payments associated with a traditional home equity loan would be too burdensome on her fixed income. Cheryl had not yet decided whether to take out a reverse mortgage. However, like Simone, she was able to think strategically because she was not in a desperate financial situation. Relieving a Burden For some participants, reverse mortgages represented an opportunity to relieve financial burdens, and thus enhance their quality of life. For example, 76-year-old Tony, a widowed white homeowner, decided to take out a reverse mortgage after his wife passed away, to relieve the burden of a mortgage payment that he could afford, but not comfortably. He explained, “I wanted to get the burden of the house off of my shoulders if I could because no one else wanted it [the house]. So obviously what the hell—why am I fighting for this house? When the time comes they carry me out of here, nobody wants it anyway. So why not make my life easier? And that’s the decision that I made.” In deciding to draw on his home equity, Tony also considered the fact that his children were financially comfortable and did not need or want his home. After paying off his existing mortgage, Tony received approximately $55,000 from the reverse mortgage, which he used to finance a vacation and other monthly expenses until the money ran out a few years later. Relieved from the burden of mortgage payments, even after the money from the loan ran out, he was able to comfortably make ends meet with income from social security, part-time employment, and payments from the tenants who rented his spare rooms. Though Tony was generally satisfied with his reverse mortgage, he did have some reservations about giving up equity in the form of fees and interest, especially since he could have afforded to continue paying his mortgage. However, he decided that the loss of equity was ultimately worth the opportunity to maximize his quality of life. He explained, “But by the same token, so it cost me $15,000 [fees and closing costs], but for how many more years did I not have a mortgage? All I had to do was pay the insurance on the place, and the taxes and that was it. You know, it was that simple. It took a hell of a burden off your shoulders.” Like other participants who considered reverse mortgage as a maximizing strategy, Tony was in a position to weigh the trade-offs of the loan and make the decision that fit with his needs. Beverly, a 76-year-old black homeowner, like Tony, also took out a reverse mortgage to relieve a financial burden. However, unlike Tony, she ultimately regretted this decision. Beverly had paid off her mortgage more than a decade earlier. She was not in dire financial straits, but experienced “a little struggle.” Beverly initially tried to relieve this struggle by selling her home, but received only one offer that was too low. She cited the negative reputation of her predominantly black and low-income neighborhood as one reason for the lack of interested buyers. When she determined that selling wasn’t an option, Beverly turned to the reverse mortgage. She received approximately $60,000 in cash from the loan and soon had to draw on these funds to address unexpected home-related expenses. She regretted that the money she obtained from the house was being “poured back into it.” At the same time, Beverly’s knees started to bother her, making the two-floor home less manageable. She explained, “I didn’t really think that my mind would change that fast about trying to get into a senior citizen [senior apartment], or whatever, until I really started having problems with my knees. I started thinking, ‘What did I do?’” However, Beverly realized that even if she sold the house, she wouldn’t have anything left over after paying back the initial loan in addition to fees and interest. While for some participants the reverse mortgage provided a sense of stability, Beverly described it as locking her into a situation that wasn’t adaptable to her changing needs. Though the reverse mortgage effectively relieved some of Beverly’s financial burden, it also represented the loss of a home she had worked hard to pay off. As she summarized: “I wasn’t happy with myself after I did it, you know, but I did it … the interest just keep going up, up, up. In that way, you’ll never be able to claim your home back because you already signed it over, and you’re not paying them anything; it’s theirs. But then you live free, you know, you just pay the taxes and the insurance and the keep-up with it.” Structurally Determined Decision-Making Landscapes While these participants present a number of different motivations for considering a reverse mortgage, their stories all point to reverse mortgages as strategic tools employed to get the most out of their home equity. In thinking strategically, they weighed the available options and carefully considered trade-offs. For some participants who considered a reverse mortgage from a position of strategic maximizing, trade-offs in the form of high fees or the inability to pass on the home to heirs were too large, leading them to ultimately decide against the reverse mortgage. While there were similarities in the strategic thinking that these maximizing participants reported, there were also important differences. Some, like Cathy, maximized out of necessity given tight budgetary margins. Cathy needed to get the most out of her home equity because she had nothing to spare. Not only was she living on a tight budget, but she also had family members who depended on her. Others, like Tony, could afford to sacrifice some equity for the sake of making life easier because they had other family and personal resources to fall back on. Likewise, while Tony’s resources gave him flexibility with regards to future options, for Beverly, the reverse mortgage was constraining. With all her assets tied up in her home, she was unable to move elsewhere. These decision-making landscapes were likely, at least in part shaped by a wide range of racially structured inequalities. Vast racial inequalities in wealth (Taylor et al., 2011) meant that participants like Cathy and Beverly had fewer resources to turn too and more people dependent on them. Racially structured real estate markets (Rugh & Massey, 2010) and the stigmatization of her predominantly black neighborhood (Keene & Padilla, 2014) likely limited Beverly’s ability to sell her home. Racial disparities in access to credit may have also shaped the lending options available to participants. After all, Cathy first sought a traditional home equity loan before turning to her reverse mortgage. Loss Prevention While some participants considered reverse mortgages strategically, others turned to this loan when they faced unmanageable expenses and the imminent loss of their homes to foreclosure. Participants in these situations were often aware of the potential downsides of reverse mortgages, noting that they would not have chosen this route if another option had been available. Protecting Against Health-Related Loss Rebecca, a 68-year-old black and married homeowner, was considering a reverse mortgage. Her husband was undergoing treatment for cancer and they were struggling to pay their mortgage and his medical expenses. They were receiving assistance to pay for his prescriptions through a charity, but Rebecca was unsure how long the assistance would continue. She explained that without it assistance, they would have to draw on their home equity noting, “If they tell us no, that we can’t help you [with the prescriptions] or we can only help you to a certain extent, then we’re going to take money out from the house to pay for it because we have to.” She also explained that traditional home equity loans were not an option because the monthly loan payments would be unaffordable. The reverse mortgage offered Rebecca a potential escape from an untenable situation, but she considered it only as a last resort. Like Rebecca, several other participants considered a reverse mortgage when a health crisis resulted in financial hardship. For example, Walter, a 67-year-old single white homeowner, took out a reverse mortgage when faced with the loss of his home after a long hospital stay. During his several months in the hospital, Walter fell behind on his bills and his property taxes. When he came home from the hospital, he found out that his house was already up for auction as a tax foreclosure. He worked with a lawyer to get his house back but was required to pay a large sum of money that he did not have. He explained, “So my attorney negotiated and said, ‘Well, you can get the house back,’ but now over $100,000.00 was what I had to pay the people that took the house in fees and services to get the house back in my name. So I took—that’s when the reverse mortgage came in.” Walter received a short-term reverse mortgage from a state program. The loan provided him with $130,000 ($100,000 of which went to pay the fees to repossess his house). At the time of the interview, Walter was living comfortably in his home and felt that he had options to either stay or sell. He credited the reverse mortgage with saving his home and allowing him to “make the best of a bad situation,” but also described its downsides. He explained, “I wouldn’t recommend a reverse mortgage as the first choice to anybody, cause the upfront fees are enormous and I have to pay stinking mortgage insurance, which is really a huge cost of that loan.” Despite these downsides of the reverse mortgage, Walter explained, “I had no other option. I had no other option. Get out or do this.” Giving Up One’s Home in Order to Keep It Adanna, a 67-year-old widowed black homeowner, also secured a reverse mortgage in order to avoid foreclosure. Adana had quit her job to take care of her dying husband and could no longer afford the mortgage and the taxes. Adanna used the reverse mortgage to pay off back-taxes and her remaining mortgage and was left with $10,000, which primarily went to pay off other bills. Though the funds from the reverse mortgage helped Adanna recover from a financial crisis, they only temporarily resolved her financial challenges. Five years after taking out the reverse mortgage, she described ongoing concerns about losing the home to foreclosure. Adanna repeatedly referred to the importance of keeping her home as a place of shelter for herself, and also for her daughter and grandchildren who lived with her. She explained, “All in my mind was that I had to keep this home for a bit. I had to. I couldn’t let it go. Where would we go?” While Adanna took out the reverse mortgage to preserve her multi-generational household, she was also aware that the loan posed a threat to her children and grandchildren’s ability to live there. She explained, “But say, like if I die today or tomorrow, if my kids don’t pay off what I owe them, they can’t live here. They have to move.” In this sense, Adanna was giving up her home, as both an asset and source of shelter for her heirs, in order to keep it temporarily. Penelope, a 76-year-old widowed white homeowner, also took out a reverse mortgage when she had no other options to save her multigenerational household from foreclosure. Penelope lived with her adult grandson who had health issues. Before taking out the reverse mortgage, she had lost her job and fallen behind on her property taxes. She explained, “It was at the end where I was gonna be probably evicted because they went through the whole process and I didn’t know what to do, so that’s why I decided to do that … I couldn’t think of another way to get out of my predicament.” While the reverse mortgage helped Penelope out of her “predicament,” it was also something that she deeply regretted. She was distressed about having a loan on the house, explaining, “I owe a lot. Now there’s a mortgage on the house, and I don’t want there—I worked all my life not to have a mortgage on the house. I don’t want to have it, but I have no way to get rid of it, because I’m old.” After taking out the reverse mortgage, Penelope continued to struggle financially with high property taxes and medical expenses. Like Adanna, Penelope described the reverse mortgage as a temporary solution that did not resolve the root cause of her financial troubles. She explained, “Well, it was only a temporary fix. It didn’t get me—it didn’t really get me out of a predicament, because it just made me go from one predicament to another one.” Structurally Determined Landscapes of Loss Prevention In the above examples of loss prevention, the reverse mortgage was an option of last resort. In Walter’s case, it served as a last-resort option that effectively resolved a financial crisis. However, in other cases, the reverse mortgage was only a temporary fix, and also had potential long-term consequences. Participants described giving up homes that their families relied on for shelter, to be able to stay in them for a little bit longer. Additionally, for some participants, their homes were their only assets; assets that they had hoped to pass on to their heirs. Both Penelope (white) and Adanna (black) described similar experiences of giving up their homes in order to keep them, suggesting a vulnerability shared across racial groups. However, on a population-level, racial inequalities in wealth and health that place black homeowners at disproportionate risk of foreclosure may contribute to racial disparities in the use of reverse mortgages as foreclosure prevention tools (Keene et al., 2014). Discussion Our qualitative interviews illustrate that reverse mortgages play varying roles and have varying benefits and consequences depending on the context in which they are considered or secured. They can be both tools for strategically maximizing equity or last-resort attempts to avoid loss. This dichotomy of decision making illustrates how reverse mortgages may, in some respects, offer the most benefit to those with more resources, potentially exacerbating existing inequalities. In particular, Simone described the reverse mortgage as an opportunity to grow her existing investments. Survey research indicates that Simone’s story is not unique. In their large survey study of homeowners considering a reverse mortgage, Moulton and colleagues (2017) find that 15% of those seeking reverse mortgage counseling were considering the loan as an opportunity to postpone drawing on other investments. This strategy has also been promoted in recent financial planning literature (Pfeiffer, Schaal, & Salter, 2014). In contrast to those who considered a reverse mortgage as an opportunity to grow their wealth, for others, it represented a depletion of their only asset. Though a reverse mortgage may help individuals avoid foreclosure temporarily, our data suggest that it may ultimately fail to resolve budgetary shortfalls. Indeed, nearly 20% of reverse mortgages originated between 2009 and 2016 are expected to default and result in foreclosure (U.S. Department of Housing and Urban Development, 2016). Regardless of default, reverse mortgages can ultimately transfer home equity to financial institutions after the borrower passes away. This process prevents the transmission of housing wealth to the next generation and as a result may contribute to intergenerational wealth inequality. Our data did not display clear racial patterns. Both black and white homeowners were present among strategic maximizers and among loss minimizers, likely reflecting the socioeconomic heterogeneity of our sample across race. However, participants’ stories did allude to the ways in which racially structured constraints and opportunities may have contributed to their decision making. They described challenges selling their home, accessing other forms of credit, and health and wealth vulnerabilities that are likely connected to an ongoing history of discrimination and discriminatory social and economic policies. Other research has described the way that these forms of structural racism contribute to the fragility of black homeownership and the risk of foreclosure (Keene et al., 2014; Libman et al., 2012). These racially structured constraints and opportunities may similarly contribute to the need for reverse mortgages as foreclosure prevention tools among black homeowners. Furthermore, by transferring wealth from black families to banks, reverse mortgages may exacerbate existing racial inequalities in wealth and represent yet another example of dispossession and serial displacement of black communities that has occurred across generations and policies, from urban renewal to the recent foreclosure crisis (Fullilove & Wallace, 2011). To better understand the implications of this loan product for racial inequalities, future research should compare reverse mortgage motivations and outcomes across racial groups, using larger and more representative samples of homeowners. Despite the risks and consequences associated with reverse mortgages, it is important to note that they can provide an option when none other exists. In our sample, reverse mortgages allowed some participants to stay in their homes longer than they would have otherwise been able. One story that is missing from our analysis is the experience of homeowners for whom even this last resort option was not available because they did not have enough equity to qualify for a reverse mortgage. Recent survey data find that one third of counseled homeowners report being ineligible for reverse mortgages and also suggest that black homeowners are disproportionately represented in this group (Moulton et al., 2017). While reverse mortgages may have created an option for foreclosure prevention, our data suggest that they were not effective long-term safety-nets for addressing income shortfalls and health expenses that older adults commonly experience. In the United States, the financing of retirement expenses through personal equity is part of a growing trend away from guaranteed income supports through defined pension plans; a trend that has contributed to the financial vulnerability of older adults (O’Rand, 2003). As other work suggests, this lack of safety-net may contribute to the fragility of homeownership for older Americans (Cutshaw, Woolhandler, Himmelstein, & Robertson, 2016; Houle & Keene, 2015). Reverse mortgages may be a strategy through which socioeconomically disadvantaged, older American adults navigate both a limited social safety-net and the housing fragility that it produces. Our findings may be shaped not only by this broader U.S. policy context, but also by the local contexts of Connecticut and Massachusetts where housing costs are relatively high. Notably, our findings suggest that the inequality we observe is not likely to be resolved through improvements in education about reverse mortgage loans. The majority of participants in our study were well-informed about the terms of the loans they considered or secured. Some took out these loans, despite known trade-offs, because they had no other options. Nonetheless, asymmetrical access to information may exacerbate the unevenness of the decision-making process that we observe. Our findings must be interpreted in light of a few limitations. First, the challenges of locating reverse mortgage holders, a small and hidden population to discuss a potentially stigmatizing topic, constrained our sample size and also our ability to sample purposively. We were not able to strategically select participants to maximize diversity. Though our analysis suggests we reached saturation on many key themes, we cannot be sure that we captured the full diversity of reverse mortgage decision making and experiences. Second, as with all interview studies, our data are limited by what participants chose to relay to us. To better capture participants’ actual experiences, we focused our analysis and data collection on concrete examples that are more likely to be trustworthy than generalized statements (Weiss, 1998). Despite its limitations, this study represents one of the first qualitative and in-depth examinations of reverse mortgage decision making, improving our understanding of how this loan operates to affect older homeowners and their families. Beyond reverse mortgages, our analysis sheds light on the way that social inequalities can be reproduced, through financial decisions and the unequal landscapes of opportunity in which they are made. Funding This work was supported by funding from the Russell Sage Foundation. Conflict of Interest None reported. Acknowledgments We would like to thank Adam Eldahan and Grace Park for their important contributions to this project. We also thank the Russell Sage Foundation for providing funding for this work. Finally, we gratefully acknowledge the research participants who shared their stories with us. References Bishop , T. , & Shan , H . ( 2008 ). Reverse mortgages: A closer look at HECM loans (pp. 1 – 51 ). 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Published by Oxford University Press on behalf of The Gerontological Society of America. All rights reserved. For permissions, please e-mail: journals.permissions@oup.com.

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The GerontologistOxford University Press

Published: Mar 7, 2018

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