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This paper studies a household's optimal demand for a reverse mortgage. These contracts allow homeowners to tap their … home equity to finance consumption needs. In stylized frameworks, we show that the decision to enter a reverse mortgage is … reduces the risky portfolio share and is more likely to enter a reverse mortgage. On the other hand, if there is a large drop …
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Using individual-level data on homeowner debt and defaults from 1997 to 2008, we show that borrowing against the increase in home equity by existing homeowners is responsible for a significant fraction of both the sharp rise in U.S. household leverage from 2002 to 2006 and the increase in...
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