The Reverse Mortgage Market in Japan and Its Challenges

Masahiro Kobayashi
Shoichiro Konishi
Toshihiko Takeishi
Japan Housing Finance Agency

The reverse mortgage is popular in the United States for elderly homeowners to enjoy a fruitful life by receiving an annuity or other financial benefits through leveraging owned houses. The Home Equity Conversion Mortgage (HECM) insured by the Federal Housing Administration is securitized in HECM mortgage-backed securities, or HMBS, guaranteed by Ginnie Mae—both are government agencies in the United States. Reverse mortgage markets exist in other jurisdictions, including the United Kingdom, Australia, and Canada, among others, without direct intervention from the public sector; however, the size of the reverse mortgage markets in those jurisdictions is much smaller than in the United States.

Japan is the forerunner of an aging society, and the country has good reason to develop a reverse mortgage market to supplement the spending power of elderly homeowners. The persistent decline of property prices after the collapse of the asset bubble in the early 1990s hindered the development of the reverse mortgage market, because financial institutions were not willing to underwrite credit risk associated with such transactions. This article describes the current status of the reverse mortgage market in Japan and analyzes challenges for the development of the market by comparing foreign cases.