Reverse Mortgages and Linked Securities: The Complete Guide to Risk, Pricing, and Regulation

CHAPTER 2

The History of Reverse Mortgages: An Insider’s View

Peter M. Mazonas Life Settlement Financial, LLC

 

 

 

 

The first reverse mortgage-type loans are thought to have been done in Europe, probably France.¹ In French, the system is called viager, after a word for “pension.” The most famous of these is a lesson in longevity risk. In 1965, Andre-Francois Raffray approached Jeanne Calment and offered her the equivalent of $500 per month for life in exchange for his inheriting her country house when she died. Mr. Raffray was most certainly convinced he had a good deal because at the time, he was 45 years old and Ms. Calment was 90. He died in 1996 at the age of 77 and she outlasted him by two years, dying at 122.

FORMATIVE YEARS

Except for one-off reverse mortgage-type loans in the United States, the first organized reverse mortgage program began in 1963 in Oregon as a property tax deferral program to ease the financial burden for seniors and allow them to remain in their homes. In this case, the Oregon Public Employees’ Retirement Fund advanced monies to the seniors with the expectation of repayment when the seniors moved from their homes. State and county government in other states followed suit. These were simple loan programs tied to need and promoted by social responsibility.

In 1979, the San Francisco Development Fund contacted Anthony M. (Tony) Frank, who was then CEO of Nationwide Savings and chairman of the Federal Home Loan Bank board, about creating a pilot Reverse ...