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Tuesday, September 05, 2006

Reverse Mortgages for the Poor

An email sends along this story from Bloomberg:

Japan to Offer Reverse Mortgages to Elderly Poor, Nikkei Says, by Tak Kumakura, Bloomberg: The Japanese government will start providing reverse mortgages to elderly people who need financial help, the Nihon Keizai newspaper reported, without saying where it obtained the information.

From April next year, the government's Ministry of Health, Labor and Welfare will lend money to people aged 65 or older, using their homes as collateral. The government will sell the houses after they die and recover the borrowed money.

The move would help reduce welfare expenses for the poor, which total 2 trillion yen ($17 billion) annually. About 20,000 people, or 5 percent of the elderly people who receive welfare payments for the poor, own real estate, according to the newspaper.

If half of those who qualify receive help through reverse mortgages, the government could save 10 billion yen a year. The mortgages would apply to properties worth 5 million yen or more, the newspaper said.

The email adds:

This is fascinating and innovative use of the state. [It] [c]ombines freedom of choice and use of the market, provides dignity to aid recipients, eliminates intermediaries & rentiers. Of course there is a danger than the homes will not be maintained, will be eyesores for neighbors, will drag down rents of adjacent homes... But in Japan where "shame" and pride police such behaviours more effectively than directive it is not an issue as such... Kind regards...

If I understand this correctly, the income from the reverse mortgage would replace existing welfare payments to the elderly poor which is the source of the government saving, and anything received over and above that amount would augment the homeowner's income. Though poverty may induce people to enter into this arrangement, it doesn't seem like a great deal since the net payment for the sale of the house is what's left over after replacing welfare payments.

    Posted by on Tuesday, September 5, 2006 at 12:15 AM in Economics, Financial System, Housing, Social Security | Permalink  TrackBack (0)  Comments (7)

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