Although government plans to offer reverse mortgages to home owners aged above 65 would add after-retirement security to senior citizens who are relatively wealthy, the majority of financially disadvantaged elderly will likely be left out, pundits said.
“Reverse mortgages would provide an alternative for some elderly people who have little cash in hand to support themselves,” Chuang Meng-han (莊孟翰), an associate professor of economics at Tamkang University, said by telephone.
Most likely, senior citizens with valuable properties in metropolitan areas will benefit from the policy, he said.
But the policy should not be viewed as an elderly welfare policy, which the government should prioritize to address the country’s rapidly aging population, as penniless and homeless senior citizens are those who really need government help, he said.
A reverse mortgage, or lifetime mortgage, is a loan made available to senior citizens whereby the home equity in a property is released in one lump sum or in multiple monthly payments. The homeowner’s obligation to repay the loan is deferred until he or she dies or moves to an elderly care center, or when a home is liquidated.
The draft policy, proposed by the Bankers Association of the ROC (銀行公會) last week, says that citizens above the age of 65 would be allowed to participate in the plan by collateralizing their home in exchange for a loan, an association source said on condition of anonymity.
The association says the government should learn from the US Home Equity Conversion Mortgage (HECM), which is the only reverse mortgage program insured by a federal government.
It is available through the Federal Housing Administration (FHA), a division of the US Department of Housing and Urban Development (HUD), the source said, adding that more than 90 percent of reverse mortgage borrowers in the US choose HECM products.
“Full government support is the key to the success of the program, whose only risk arises when a borrower lives for a long time,” he said.
The government is obliged to take over a property when nearly 90 percent of its value has been converted into payments to the borrower, who will continue to receive subsidies from the government as long as he or she lives, he said.
Under the policy, citizens aged between 65 and 70 will be allowed to borrow a loan equivalent to as much as 50 percent of the value of their collateralized properties, or a loan-to-value ratio of up to 50 percent.
People aged between 70 and 75 would receive a 55 percent loan-to-value ratio, while those aged above 75 would get a 60 percent ratio, the policy says. In addition to interest payments, borrowers could be charged one-time fees such as a front-load fee for property re-evaluation and a 0.02 percent service charge.
If a property owner dies earlier than expected, the remaining value of the property could be claimed by the heir. Neither the government, the bank nor the creditor could claim it, the source said.
The draft will soon be reviewed by an inter-ministerial meeting at the Cabinet before a finalized policy is formulated.
The association official said he did not expect private insurers or banks would take part in the program in the first few years, when adjustments are usually made.
The private sector, however, has welcomed the program.
Tsai Chung-i (蔡宗易), assistant vice president at Farglory Group (遠雄企業團), and Johnny Wong (黃振國), a senior vice president at New York Life Insurance Taiwan Corp (紐約人壽), called the program viable, although they hold different views about the role of government in the plan.
Tsai said his group’s subsidiary, Farglory Life Insurance Co (遠雄人壽), could be interested in taking part in the program as long as there is a reasonable return.
“The nation’s life insurers aren’t charity groups, so we would certainly need to look beyond risk,” he said.
Tsai said the government should set an expiration date on the policy — 20 years, for example — which would provide a solid foundation for a company as it calculates risks.
Wong, however, questioned whether it was fair for the government to subsidize insurers who participate in the program, as well as their policyholders, as the program would not include the entire elderly population.
He said the government should allow insurers to play a bigger role in assessing and shouldering the risk.
Insurers should be taking care of the policyholders for as long as they live, but they should also be compensated with remaining property gains if some policyholders die early, he said.
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