Extract from. Études et Dossiers No World Risk and Insurance Economics Congress. Inaugural Conference

Transcription

1 Inernaional Associaion for he Sudy of Insurance Economics Éudes e Dossiers Exrac from Éudes e Dossiers No. 32 World Risk and Insurance Economics Congress Inaugural Conference 7 11 Augus 25 Sal Lake Ciy, Uah, USA November 25 Working Paper Series of The Geneva Associaion Associaion Inernaionale pour l'eude de l'economie de l'assurance The Geneva Associaion - General Secrearia - 53, roue de Malagnou - CH-128 Geneva Tel.: Fax: secrearia@genevaassociaion.org -

2 The Geneva Associaion Working Paper Series Éudes e Dossiers appear a irregular inervals abou 1-12 imes per year. Disribuion is limied. The Éudes e Dossiers are he working paper series of The Geneva Associaion. These documens presen inermediary or final resuls of conference proceedings, special repors and research done by The Geneva Associaion. As hey conain work in progress or summaries of conference presenaions, he maerial mus no be cied wihou he express consen of he auhor in quesion. Layou & Disribuion: Valéria Kozakova The Geneva Associaion - Associaion Inernaionale pour l'eude de l'economie de l'assurance

3 The Geneva Associaion Eudes e Dossiers no WRIEC (Aug. 1, 25, 8:3 a.m.-1: a.m.) A Lifeime Housing Asse Plan Using Morgage and Reverse Morgage Finance June 13, 25 Seungryul Ma Deparmen of Insurance and Finance, Daegu Universiy, Souh Korea srma2@daegu.ac.kr Tel: Fax: Deokho Cho Deparmen of Public Adminisraion, Daegu Universiy, Souh Korea chodh@daegu.ac.kr Tel: Fax: Absrac The goal of his sudy is o esablish a lifeime housing asse plan hrough combining a morgage sysem wih a reverse morgage one in he Korean housing marke. Using he morgage sysem will be a useful mehod of financing for homeowners and a reverse morgage sysem may be an imporan financial vehicle o supplemen house rich bu cash poor elderly homeowners. The main findings of his research are as follows. Firs, he homeowners who used morgage loans when hey purchase home definiely can ge more ne asses han who do no use morgage loans hrough he pah of life cycle. Second, morgage borrowers who decide o conrac he morgage loans and purchase home earlier can ge more ne asses han who decide laer. Using morgage loans, borrowers no only can realize he dream of homeownership a an early age bu also increase heir ne asses hrough ime. Finally, he reverse morgage loans can conduc an imporan role for elderly homeowner s welfare afer reiremen. Therefore, by incorporaing morgages and reverse morgages ino he lifeime housing asse plan, he homeowners can realize homeownership earlier as well as sabilize he levels of expendiures hrough lifeime.

4 The Geneva Associaion Eudes e Dossiers no. 32 Inroducion Basically mos of housing policies assume ha a homeownership is inherenly desirable and acually superior o oher ypes of enure, and each household would like o own if hey can access or have adequae resources. Therefore, homeownership policy has naurally a op prioriy among housing polices and mos counries have made an effor o promoe homeownership. Using he morgage sysem will be a useful mehod of financing o become homeowners because he housing prices are relaively very high in Korea. The Korea Housing Finance Corporaion (KHFC) was esablished on March 1, 24 o promoe housing ownership hrough he effecive supply of housing purchasing funds. KHFC ries o help households o become homeowners by providing long-erm fixed rae morgages wih mauriies from 1 years o 2 years 1 and provides guaranees on housing loans o make housing more affordable o low- and mid-income families. The KHFC's guaranee program reduced grealy he credi risks relaed o morgages, lender acively exend morgages, and has conribued grealy o he revializaion of he housing loan business in he Korean housing financial marke. Now, any individual borrower can be eligible for a guaranee of morgage finance for purchasing housing. Recenly, afer building he morgage sysem, reverse morgage sysem is recognized an imporan financial vehicle o supplemen insufficien social securiy sysems for elderly homeowners because Korea rapidly goes ino an aging sociey. A reverse morgage sysem may be an imporan financial vehicle o supplemen house rich bu cash poor elderly homeowners who reired. Therefore he Korean governmen ries o inroduce he governmen-insured reverse morgage program for elderly homeowners. A reverse morgage make possible ha homeowners could remain in heir homes, reain he propery s ile, and receive ax-free funds wihou making monhly repaymens. In summary, a morgage sysem covers he period unil a household becomes a loan-free homeowner bu a reverse morgage sysem charges he period from a household head reiremen o is disappearance. This sudy ries o combine morgage and reverse morgage sysem in order o build a lifeime housing asse managemen plan. A home buyer borrows he housing purchasing fund from a morgage company. A borrower pays is monhly ineres and principal and housing equiy gradually increases and his deb decreases. A reverse morgage is he opposie direcion of cash flows wih a forward morgage. Acually i convers a porion of homeowner s housing equiy ino cash. For example, a reverse morgage is available for he age 62 or over elderly people under he U.S. HECM (Home Equiy Conversion Morgage) program which is an unique reverse morgage insured by he federal governmen (Scholen, 1996). The HECM The radiional morgage is he 3-year fixed-rae morgage wih consan monhly scheduled paymens in U.S. (Sundaresan (22)).

5 The Geneva Associaion Eudes e Dossiers no. 32 reverse morgage program provides a wide array of cash advance choices. Borrowers can have a choice of paymen plans among erm, enure, crediline, and combinaions of hese opions. Evenually a morgage sysem covers he firs half of life cycle of each household who wan o be a homeowner. A reverse morgage sysem covers he second half of life cycle of each household who wan o receive cashes from home equiy afer reiremen. Many elderly homeowners have spen long erm paying off a morgage unil mauriy. Therefore he holding of homeownership is one of he mos imporan concerns afer reiremen. A reverse morgage program make possible ha borrowers could no have o make monhly repaymens and reain he ile o heir home unil hey no longer occupy he home due o deah, illness, or a move o a new home. The purpose of his research is o build an appropriae lifeime housing asse plan (LHAP) hrough he inegraion of he morgage and reverse morgage sysem and o mach a household life cycle wih housing asse plan. To achieve he purpose of his research, selecions of morgage and reverse morgage programs should be concenraed on sabilizing he sandard of living or he level of expendiure of homeowners hrough all life cycle. I is imporan o consruc an appropriae morgage plan considering borrower s age-earnings profiles, ageexpendiures profiles, work life expecancies, he rend of housing prices, and ineres raes. A reverse morgage plan should consider elderly homeowner s life expecancy, fuure housing prices, and ineres raes. Considering hese facors, his sudy ries o build he lifeime housing asse plan hrough combining he morgage sysem wih he reverse morgage one following he household life cycle. This sudy creaes a new paymen mehod which is called a graduaed monhly paymen in he morgage sysem because he curren paymen way only focuses on he fixed paymen. In order o deermine an appropriae amoun of morgage loan, i finds ou he dynamic earnings and age-expendiures profiles using he ime series properies of earnings and expendiures. I also confirms an appropriae erm srucure of morgage sysem using median years o he borrower s reiremen. This sudy focuses on he enure plan 2 in he reverse morgage sysem. The amoun of reverse morgage loan would be deermined depending on elderly homeowner s ages, probabiliy of moraliy, and house prices. And i also analyzes he effec of privae annuiy in order o evaluae he available maximum level of expendiure of elderly homeowners. Based upon hese analyses, i builds he reasonable cos srucures of forward and reverse morgage sysems, and combines hem ino he lifeime housing asses plan following he household s life cycle before and afer reiremen. Through building he lifeime housing asse plan, his sudy can conribue o mainain he home ownership and o sabilize he sandard of living. This program guaranees he sabilizaion of living as well as Ma and Cho (24) analyzed he paymen mehods of reverse morgages focused on enure plans. Ma and Deng (25) conduced research for insurance srucure of enure plans in Korea.

6 The Geneva Associaion Eudes e Dossiers no. 32 he homeownership for he life-ime of each household from is generaion o disappearance. I migh be conribued o solve an ulimae goal of housing policies. Daa Analysis Growh Rae of Housing Values, Chonsei Prices, and Inflaion Raes The aparmen housing in Korea is he mos popular housing ype which is no renal housing bu similar wih he condominium in he Unied Saes 3 and chonsei is he mos popular lease conrac in he Korean housing marke 4. This sudy uses he monhly daa of aparmen house price index (APT) and aparmen chonsei price index (CHONSEI) of Kookmin Bank from o as a proxy variable of he housing price and chonsei price, respecively. I generaes he ime series of growh raes of aparmen prices (GA) by log differencing he ime series of APT and he ime series of growh raes of chonsei prices (GCHON) by log differencing he ime series of CHONSEI. Figure 1 shows he rend of housing price index (APT) and growh raes of housing price (GA) as well as he rend of chonsei price index (CHONSEI) and growh raes of chonsei price (GCHON) APT GA CHONSEI GCHON Righ Scale: house price index (APT) Lef Scale: growh raes of house price (GA) Righ Scale: cheonsei prices index (CHONSEI) Lef Scale: growh raes of cheonsei price (GCHON) [Figure 1] Housing Price Index (APT) and Growh Rae of Housing Price (GA), Chonsei Price Index (CHONSEI) and Growh Raes of Chonsei Price (GCHON) 3 Cho and Ma (24) showed ha he owners of aparmen housing could be he bes poenial borrowers of reverse morgage loans in Korea. Chonsei is a unique lease conrac in Souh Korea. The Korean chonsei conrac specifies ha he enan pay an up-fron deposi (chonsei deposi) for he righ o use he propery wih no requiremen for periodic ren paymens. A he conrac mauraion, he enan is eniled o receive from he landlord a paymen equal o he chonsei deposi. The chonsei deposis ypically beween 4% and 8% of he propery prices. Therefore, he landlord can ge he invesmen reurn on he chonsei deposi over he lease conrac (Ambrose and Kim (23)).

7 The Geneva Associaion Eudes e Dossiers no. 32 I also uses he ime series of consumer price index (CPI) issued by Korea Naional Saisical Office (KNSO) from o in order o generae he ime series of inflaion raes. I can ge he ime series of inflaion raes (INFL) hrough log differencing he ime series of CPI. Figure 2 shows he rend of consumer price index (CPI) and inflaion raes (INFL) INFL CPI [Figure 2] Trends of Consumer Price Index (CPI) and Inflaion Raes (INFL) Ineres Raes The radiional morgage is he 3-year fixed rae morgage wih consan monhly scheduled paymens in U. S. A. Therefore, alhough he curren morgage loans in Korea use 2-year, 15-year, and 1-year erm plans, his paper adops 25-year, 2-year, and 15-year plans according o borrower s life cycle from household generaion o reiremen. The borrowers should pay scheduled monhly fixed amoun o he loan company wihou considering heir monhly earnings. However, his paper builds a new mehod of graduaed paymen morgages (GPMs) reflecing he borrowers monhly incomes. The curren morgage loan uses he fixed rae of 6.25% per annum as he morgage raes in Korea. And his paper uses 6.25% per annum as he morgage raes in his analysis. Meanwhile, when his sudy projecs he fuure values of lefover financial asses (cashes) in he morgage plans, i uses he mean value of ineres raes on ime deposis (=.375 per annum) issued by The Bank of Korea from 1.24 o (1 years). I analyzes enure paymen (annuiy) plans in reverse morgage plan and uses 7.% per annum as he annuiy rae of reverse morgage loans following Ma and Deng (25). Dynamic Nominal Age-Earnings Profiles and Age-Expendiures Profiles In order o build he lifeime housing asse plan, a firs, i is necessary o generae he borrower s dynamic nominal age-earnings profiles. Following Carpener, Lange, Shannon, and

8 The Geneva Associaion Eudes e Dossiers no. 32 Sevens (1986), he neoclassical wage deerminaion model can be expressed as follows: ( 1 g) = ( 1 + p)( 1 + i) + e + (1) where, g = growh rae of nominal wages, p = average rae of produciviy increases (= growh rae of real wages), i = growh rae in nominal wages accouned for by inflaion, e = he error erm; E ( e) = According o he assumpion of neoclassical wage deerminaion model, his sudy can ge he dynamic nominal age-earnings profiles using ime series of cross secional age-earnings daa. I was well known ha cross secional age-earnings profiles shaped like an invered U (Rodgers e al., 1996). However, dynamic real age-earnings profiles which reflec longiudinal ime series daa show more increasing concave paerns o he base in Korea (Ma, 22). Therefore, considering he inflaion effec, he shape of dynamic nominal age-earnings profiles expeced o be remarkably differen from an invered U shape. This paper generaes no only dynamic nominal age-earnings profiles bu also dynamic nominal age-expendiures profiles using ime series cross secional age-earnings and ageexpendiures daa which issued from Korea Naional Saisical Office (KNSO). I uses he daa of incomes and expendiures of salary and wage earner s households by age group from1982 o 24 as a proxy variable of earnings and expendiures, respecively 5. Figure 3 shows cross secional age-earnings profiles and age-expendiures profiles in 1982 and 24. Each profile in 1982 and 24 shows an invered U shape bu i grealy differs each oher in he size EARN1982 EXPEN1982 EARN24 EXPEN24 [Figure 3] Age-earnings and age-expendiures daa from he KNSO are aggregaed ino 5-year age inervals and eigh age groups; (1) age 24 and less, (2) age 25-29, (3) age 3-34, (4) age 35-39, (5) age 4-44, (6) age 45-49, (7) age 5-54, (8) age 55 and over. We use Hodrick-Presco (HP) filers o generae single-year values from hese 5-year inervals.

9 The Geneva Associaion Eudes e Dossiers no. 32 Age-Earnings Profiles (EARN) and Age-Expendiures Profiles (EXPEN) Figure 4 shows he dynamic rends of nominal age-earnings and age-expendiures profiles which include he effec of inflaions by wo age groups beween group and 4-44 group a Dynamic Nominal Age-Earnings Profiles Dynamic Nominal Age-Expendiures Profiles TREND2529 TREND444 EARN22 EARN1999 EARN1994 EARN1991 TREND2529 TREND444 EXPEN22 EXPEN1999 EXPEN1994 EXPEN1991 [Figure 4] Trends of Nominal Age-Earnings and Age-Expendiures Profiles by Two Age Groups Using hese wo dynamic rends, his paper generaes he index of dynamic nominal ageearnings and age-expendiures profiles by sandardizing he values of wo rends like Figure 5. The daa of age-earnings and age-expendiures profiles are aggregaed ino 5-year inervals excep for hose aged 24 and less and for hose aged 55 years and over. This paper calculaes he age-earnings and age-expendiures profiles unil aged 64 and uses he Hodrick-Presco (HP) filers 6 o obain single-year values for hese 5-year inervals. Figure 5 shows single-year values from age 25 o age 64. The HP filer is a wo-sided linear filer ha compues he smoohed series s of y by minimizing he variance of y around s, subjec o a penaly ha consrains he second difference of s. Tha is, he HP T 2 T 1 filer chooses s o minimize ( y s ) + λ [( s + 1 s ) ( s s 1 )] = 1 = 2 2. The penaly parameer λ conrols he smoohness of he series s. The larger he λ, he smooher he s. As λ, s approaches a linear rend. This paper used 1 as he value for he smoohing parameer, λ.

10 The Geneva Associaion Eudes e Dossiers no EARN(HP) EXPEN(HP) AGE [Figure 5] HP rends of Dynamic Nominal Age-Earnings and Age-Expendiures Profiles Figure 6 shows he dynamic real age-earnings and real age-expendiures profiles which he effec of inflaion raes are removed. Lef Scale: Saic Age-Earnings and Age-Expendiures Profiles (24) Righ Scale: Dynamic Real Age-Earnings and Age-Expendiures Profiles Dynamic real EARN Dynamic real EXPEN EARN (24) EXPEN (24) AGE [Figure 6] Real Age-Earnings and Age-Expendiures Profiles (from age25 o age64) This sudy generaes he growh rae of dynamic age-earnings and age-expendiures profiles from log differencing HP rends in Figure 5. Figure 7 shows he growh raes of dynamic nominal age-earnings profiles and he dynamic nominal age-expendiures profiles using each HP rend.

11 The Geneva Associaion Eudes e Dossiers no Growh raes of dynamic nominal age-earnings (GEARN) and dynamic nominal age-expendiures (GEXPEN) profiles.12.8 GEARN GEXPEN AGE [Figure 7] Growh Raes of Dynamic Age-Earnings and Age-Expendiures Profiles Median Years o Reiremen (MYR) Median years o reiremen (MYR) and work life expecancy (WLE) are wo commonly used measures of he loss period for calculaing he presen values of los earnings due o wrongful deah or personal injury. The MYR is defined as he oal number of years o he median reiremen age which 5% of hose in he base age group would have permanenly separaed from he labor force. The WLE is defined as he oal number of years ha a person of a paricular age will paricipae in he labor force over he remainder of his or her life. This paper deermines he maximum morgage erms wihin he limis of MYR by borrower s age groups. Hun, Pickersgill, and Ruremiller (1997; 21) sugges ha MYR is a more appropriae measure of loss han WLE if measuring earning capaciy is he objecive, and MYR which uses paricipaion raes is simpler o deermine and less subjec o bias han WLE which uses he Markov model and he use of ransiion probabiliies. Cho (199) and Park (21) published a se of working life ables for he Korean men using he modified poenial paricipaion raes and he saionary populaions by age group. To generae he MYR of workers, Ma (25) incorporaed he mehodology of modified poenial paricipaion raes from Park (21) wih he MYR from Hun e al. (1997; 21) using he daa of 22 Annual Repor on he Economically Acive Populaion Survey (KNSO, 23) and he 22 Life Tables for Korea (KNSO, 24). Figure 8 shows he median years o reiremens from age 15 o age 79 in Korea 7. The deails of he generaing process are specified in he Appendix A.

12 The Geneva Associaion Eudes e Dossiers no MYR(female) MYR(male) AGE [Figure 8] Median Years o Reiremens (age15 o age 79) Moraliy Raes When his paper plans a reverse morgage annuiy, borrower s moraliy rae should be considered. This analysis uses he moraliy rae (he probabiliy of dying) from he daa of 22 Complee Life Tables in he Korea Naional Saisical Office (KNSO). This paper generaes monhly moraliy rae of aged 6 and above o aged 1 8 using Hodrick-Presco (HP) filers. The KNSO assumes ha he moraliy rae of aged 1 and above equal o 1. (if age 1 hen, q =1.). In Figure 9, qf is female s moraliy raes and qm is male s moraliy raes. qf(hp) is HP rend of female s moraliy raes and qm(hp) is HP rend of male s moraliy raes (qm). This paper assumes ha he younger co-borrower in he family is a wife (i.e. female). Therefore, insead of using he co-borrower s join age sex moraliy rae, i simply uses he female s moraliy rae. I uses he values of male s HP rend as he female s moraliy raes following Ma and Deng (25) 9. 8 The KNSO assumes ha he moraliy rae of aged 1 and above equal o 1. (if age 1 hen, q =1.). Because no erminaion experience was available when he premiums were originally se, an assumpion of erminaions ha were 1.3 imes he moraliy raes of he younges borrower in he family were made in he U.S. HECM program. Bu, according o Rodda, e al. (23), he 1.3 imes moraliy assumpion under-predics erminaions a young ages, and over-predics erminaions a lae ages over he hisorical period. To alleviae his problem, Ma and Deng (25) used male s moraliy raes as female s erminaion raes.

13 The Geneva Associaion Eudes e Dossiers no qm qm(hp) qf qf(hp) [Figure 9] Moraliy Raes by Age Housing Asse Plans Morgage Loans The convenional residenial morgage loan falls ino wo caegories: a fixed-rae morgage (FRM) and an adjusable-rae morgage (ARM) 1. The FRMs have level pay srucures, bu here is anoher srucure such as graduaed paymen morgage (GPM). The monhly paymen sreams in GPMs are seadily increased o a predeermined level wihin five years or so. Therefore, he ousanding balance migh acually increase because he iniial paymens are low, leading o negaive amorizaion during he firs few years of he morgage erm. 11 The KHFC provides a fixed rae morgage which has only a level pay srucure. In his morgage srucure, he relaionship beween he face value of he morgage loans (MLOAN) and he monhly consan paymen (CPMs) can be expressed as follows: T(a) 1 MLOAN = PMT (2) = i where MLOAN = H LTV MLOAN = he face value of he morgage loans H = he housing value Refer o Brueggeman and Fisher (21). 11 Refer o Brueggeman and Fisher (21) and Sundaresan (22).

14 The Geneva Associaion Eudes e Dossiers no. 32 LTV= loan-o-value raio PMT = he consan monhly morgage paymens T(a) = he mauriy by age a i = he fixed morgage rae Therefore, he consan monhly morgage paymens can be calculaed as follows: MLOAN PMT = (3) T(a) 1 = i This paper inroduces a new mehod of graduaed paymen morgage (GPM) and analyzes morgage loans using his new mehod. The monhly morgage paymens increase according o he mean value of inflaion rae unil he loan is reired a he mauriy. The base saring amouns (A) in GPM can be calculaed by using he relaionship as follows. T(a) T(a) c MLOAN = PMT = A (4) = i = i where A = he base saring amouns C = he mean value of inflaion rae PMT, MLOAN,T(a), and i are defined as above. Therefore, he base saring amouns (A) can be calculaed as follows: MLOAN A = (5) T(a) 1 + c = i Considering he spreads beween dynamic nominal age-earnings profiles and dynamic nominal age-expendiures profiles in Korea, his sudy shows ha his new GPM can ge validiy. Reverse Morgage Loans If he borrowers used he lump sum reverse morgage paymens (LSUM) o purchase a monhly consan annuiy, he annuiy paymen is compued such ha he lump sum paymen equals he presen discouned value of he sream of annuiy paymens muliplied by he

15 The Geneva Associaion Eudes e Dossiers no. 32 probabiliy ha he borrower is sill alive like Equaion (6). T(a) 1 PMT LSUM = p = ( + ) x (6) 1 r where LSUM = he lump sum reverse morgage paymen PMT = he annuiy paymen (consan monhly paymen) T(a) = he life expecancy by borrower s age a r = he annuiy rae p x = he probabiliy ha a borrower age x will survive o age x+ Solving he equaion (6) for he monhly annuiy paymen is as Equaion (7): LSUM PMT = (7) T(a) 1 1 p x = ( 1+ r) This sudy focuses on he enure plan (i.e. he monhly graduaed annuiy) of reverse morgage sysem which guaranees he homeownership for he lifeime of households. More specifically, i focuses on he analysis of graduaed monhly paymens o reflec he growh rae of consumer price 12. Provided ha he ime series of growh rae of consumer price ( c ) is saionary, i can calculae he base saring amouns ( A ) of graduaed monhly paymens using he mean value of growh rae of consumer price (C) as follows. LSUM = T(a) 1 = PMT ( 1 + r) p x T(a) 1 = 1 + c = A px (8) 1 + r where A = he base saring amouns of graduaed monhly paymens c = he mean value of growh raes of consumer price LSUM, T(a), PMT, r, and p x are defined as above. Using he above relaionship, i can evaluae he maximum level of base saring amoun of graduaed monhly paymens as follows: In he U.S. HECM program, a monhly loan advance does no increase or decrease in dollar amoun over ime (Ballman (24)). Bu if he borrowers selec he mehods of graduaed monhly paymens, i is expeced ha he risk of decrease in purchasing power could be considerably alleviaed.

16 The Geneva Associaion Eudes e Dossiers no. 32 LSUM A = (9) T(a) 1 1+ c = px 1+ r Resuls of Analysis Morgage Loan Plan This paper assumes hree morgage loan plans and one non-morgage loan plan in order o confirm he usefulness of morgage loans. We analyze he cases of curren morgage borrower s age 35. Morgage Plans Non-Morgage Plan <Table 1> Definiion of Morgage or Non-Morgage Plans Plan 1: Purchasing house a age 35 using morgage loans Plan 2: Purchasing house afer 5 years (a age 4) using morgage loans Plan 3: Purchasing house afer 1 years (a age 45) using morgage loans Plan 4: Purchasing house afer 2 years (a age 55) wihou morgage loans Plan 1: Purchasing house a age 35 using morgage loans Table 2 repors he informaion abou morgage borrower assumed in his research. <Table 2> Informaion abou Morgage Borrower s Age 35 EARN 3,57, won EXPEN 2,344, won DIFF 713, won Morgage erm (T(a)) 25 yrs (3 mon) Median years o reiremens (MYR) years Morgage rae 6.25% per annum Maximum DTI (= EARN * 33%) 1,19, won Ne asses (NET) 6,, won

17 The Geneva Associaion Eudes e Dossiers no. 32 Noe: 1. EARN = borrower s monhly earnings (incomes) 13 EXPEN = borrower s monhly expendiures 14 DIFF = EARN - EXPEN a =; a =; DTI raio = raio of monhly morgage paymens o monhly incomes; 2. We assume he morgage rae and maximum DTI following he curren morgage sysem in Korea. 3. Ne asse: 6 million won (chonsei deposi) Figure 1 shows he expeced rends of dynamic nominal age-earnings profiles and ageexpendiures profiles using index in Figure 5 when he borrower s age 35 a loan originaion EARNprofile(35) EXPENprofile(35) DIFF(35) N [Figure 1] he rends of dynamic nominal profiles and DIFF (borrower s age 35) Figure 11 shows he sandardized rends of DIFF ( DIFF ) of borrower s age 35 and inflaions, respecively. All values a = are sandardized ino 1.. For generaing he nominal rend of inflaions, we use he mean value of monhly inflaion raes (=.3893) 15 from o We use monhly earnings ( EARN ) and expendiures ( EXPEN ) a 24 from he values of HP rends. Monhly expendiures ( EXPEN ) include non-consumpion expendiures. Non-consumpion expendiures are composed of direc ax, public pension, social insurance, and oher non-consumpion expendiures. For confirming he saionariy of ime series of inflaion rae (INFL) from o 12.24, we conduced uni roo es using he ADF es and PP es. The saisics of ADF and PP es showed his ime series was saionary a a 1 % level of significance (ADF: , PP: ).

18 The Geneva Associaion Eudes e Dossiers no DIFF35 INFL N [Figure 11] The rends of DIFF (Age 35) and Inflaions Table 3 repors he descripive saisics of inflaion raes and he growh raes of DIFF. I shows ha he mean value of he growh raes of DIFF is considerably larger han ha of inflaion raes. <Table 3> Descripive Saisics of monhly inflaion raes and DIFF raes Period Mean Sd. Dev. Inflaion Raes DIFF Raes According o his resul, we can use he mean value of monhly inflaion raes as he value of morgage paymens growh rae (c) in he equaion (4). This sudy uses he values of curren DIFF ( DIFF ) as he base saring amouns (A) of graduaed paymen morgages (GPM) in equaion (4). MLOAN = A T(a) = c 1 + i T(a) 1+ c = DIFF (4) = i In he case of age 35, when we use he mean value of monhly inflaion raes as he value of morgage paymen growh rae (c) in he equaion (4), he possible face value of he morgage loans ( MLOAN ) can be calculaed as Table 4. Therefore, if we assume ha he borrowers have he ne asses equal o down paymens (= H 3% ) before conrac morgage loans, he maximum levels of housing price ( H ) which borrowers can purchase using morgage loans under he curren economic condiions are consrained o 252,533, won. In

19 The Geneva Associaion Eudes e Dossiers no. 32 his case, he possible maximum levels of MLOAN (= H 7% ) become 176,773, won. <Table 4> Values of Base Saring Amouns, Morgage Loans, and Housing Price Cumulaive discoun facor (CDF) Base saring amouns A (= DIFF ) Maximum morgage loan ( MLOAN ) Maximum House price ( H ) 3 Noe: CDF = [( ) ( 1 (.625/12) )] = , won 176,773, won 252,533, won However, considering he levels of ne asses which morgage borrowers are possessing a loan originaion, i is necessary o conrol he level of housing prices according o he curren magniudes of heir ne asses. This paper assumes ha borrowers purchase he houses which evaluaed 2 million won ( H = 2 million won), considering he level of borrower s curren ne asses (i.e. we assumed 6 million won as he ne asses of borrower s age 35). Therefore, we have o modify he LTV raio, acual MLOAN, and base saring amouns like Table 5. Noe: 1. LTV raio 16 <Table 5> Modified Values of Housing Price ( H ), MLOAN, Base Saring Values (A) Ne asses (NET) Modified housing price ( H ) 6 million won 2 million won LTV raio 7 % Acual MLOAN Modified base saring amouns (A) Lefover financial asses (LFA) = loan-o-value raio; 2. LFA = (NET+ Acual MLOAN) - H 14,, won 564,68 won won Meanime, he fuure housing price a = n ( H ) can be projeced like he following formula. n ( 1 + g ) = 1 n H = H (1) n where H n = he fuure housing price a = n g = he growh raes of housing price a Maximum LTV= H *7%

20 The Geneva Associaion Eudes e Dossiers no. 32 If he ime series of growh raes of housing price ( g ) is confirmed saionary, he equaion (1) can be simplified like equaion (11) which use he mean value of monhly growh raes of housing price ( g ) 17. n ( 1 g) H = H + (11) where H = he housing price a =. We also can calculae he fuure chonsei prices using he same mehod as equaion (11). The mean value of monhly growh raes of housing price and chonsei price were.471 and.6897, respecively, from o Table 6 and Figure 12 repor he projeced housing prices, lefover financial asses (cashes), and ousanding loan balances (OLB) hrough ime. <Table 6> Projeced Lefover Cashes and Housing Prices hrough ime Plan1 Housing Price Lefover Cash OLB35 Ne Asse N= 2,, 14,, 6,, N=6 264,996,457 11,121, ,679, ,438,399 N=12 351,115,61 39,13, ,394, ,825,8 N=18 465,221, ,685, ,589,78 454,317,719 N=24 616,41, ,567,71 83,734, ,243,468 N=3 816,733, ,124,36 1,799,464 1,3,58,4 N=36 1,82,157, ,29,42 1,981,366,777 Noe: 1.When we calculae he borrower s fuure values of lefover financial asses (cashes), we use he mean value of ineres raes on ime deposis (=.375 per annum) issued by The Bank of Korea from 1.24 o (1 years). Five major caegories of sudies on home price dynamics exis: random walk, single equaion, mean reversion, ime-varying volailiy, and vecor auoregressive models. Each has srenghs and weaknesses (Berson, Lereah, Merski, Nohaf, and Seiders (24)). In he long erm forecas for morgage and reverse morgage finance, if he ime series of housing prices confirmed saionary, we can reasonably use he mean value of housing prices. For confirming he saionariy of ime series of growh raes of housing prices and chonsei prices from o 12.24, we conduced uni roo es using he ADF es and PP es. The saisics of ADF and PP es showed hese wo ime series were saionary (saisics of growh raes of housing prices represen ADF: , PP: and growh raes of chonsei prices represen ADF: , PP: The es criical values are 1% level: , 5% level: 3.431, 1% level: ).

21 The Geneva Associaion Eudes e Dossiers no Cumulaive Lefover cash: CumulaiveLefover = N = 1 [( DIFF Paymen ) ( 1 Lg α )] + α= 1 (N ) Lg α = growh rae of Lefover cashes a = α Morgage Plan 1 1,2,, 1,,, 8,, 6,, 4,, 2,, N= N=6 N=12 N=18 N=24 N=3 N=36 Housing Price Lefover Cash OLB35 [Figure 12] Trend of Housing Prices, Lefover Cashes, and Ousanding Loan Balances Plan 2: Purchasing house afer 5 years (a age 4) using morgage loans In his case, we consider ha he morgage borrower does no conrac he morgage loan his ime and conrac he morgage loan afer 5 years (6 monhs). <Table 7> Informaion abou Morgage plan afer 5 years (6 monhs) EARN 61 4,823, won EXPEN 61 3,896, won DIFF 61 Morgage erm Median years o reiremens (MYR) Morgage rae Maximum DTI (=EARN * 33%) Ne asses (NET) 927, won 2 yrs (24 monhs) years 6.25% per annum 1,68, won 113,, won Cumulaive discoun facor (CDF) Base saring amouns A (= DIFF 61 ) 927, won

22 The Geneva Associaion Eudes e Dossiers no. 32 Maximum morgage loan ( MLOAN ) Required down paymen 19,789, won 81,767, won Maximum House price ( H ) 272,556, won 6 Noe: 1.When we calculae he borrower s fuure values of lefover financial asses (cashes), we use he mean value of ineres raes on ime deposis (=.375 per annum) issued by The Bank of Korea from 1.24 o (1 years). 2. Ne asses (NET) are projeced as follows. - Iniial chonsei deposi a age 35: 6 million won - Increased chonsei deposi (afer 5 years): 3 million won - Cumulaive DIFF (afer 5 years): 53 million won - Lefover cashes (financial asse): 23 million won - Toal chonsei deposi (non financial asse): 9 million won - Borrower s oal ne asses (afer 5 years): 113 million won CDF = [( ) ( 1 (.625/12) )] = + 1 This paper assumed ha morgage borrowers purchased he houses which evaluaed 2 million won ( H = 2 million won) a age 35 in Plan 1, considering he level of borrower s ne asses. In Plan 2, afer 6 monhs, we assume morgage borrowers can buy he house ( H 6 ) which evaluaed equal o he house wih a marke value of 2 million won a = ( H ). According o he value of H 6, we modified he LTV raio, acual MLOAN, and base saring amouns. Table 8 repors hese modified values. <Table 8> Modified Values of Housing Price ( H ), MLOAN, Base Saring Values (A) Ne asses (NET) 113 million won Modified housing price ( H 6 ) 265 million won LTV raio 7 % Acual MLOAN 186 million won Modified base saring amouns (A) 93,73 won Lefover financial asses (LFA) 34 million won Noe: 1. LTV raio 19 = loan-o-value raio; 2. LFA = (NET+ Acual MLOAN) - H 61 H = H 1+ =265 million won 3. ( ) 6 6 g Maximum LTV= H *7%; H = he housing price a =.

23 The Geneva Associaion Eudes e Dossiers no. 32 Table 9 and Figure 13 repors he projeced housing prices, lefover financial asses (cashes), and ousanding loan balances (OLB) hrough ime under Plan 2. <Table 9> Projeced Housing Prices, Lefover Cashes, and Ousanding Loan Balances Plan 2 Housing Price Lefover Cash OLB4 Ne Asse N= (2,,) 6,, N=6 264,996,457 34,8,58 186,, 113,76,515 N=12 351,115,61 52,747,53 182,851, ,11,556 N=18 465,221, ,24,29 159,865, ,596,71 N=24 616,41, ,227,383 16,146, ,491,548 N=3 816,733, ,243,725 2,284,886 1,241,692,37 N=36 1,82,157, ,997,193 1,96,154,568 Morgage Plan 2 1,2,, 1,,, 8,, 6,, 4,, 2,, N= N=6 N=12 N=18 N=24 N=3 N=36 Housing Price Lefover Cash OLB4 [Figure 13] Trends of Housing Prices, Lefover Cashes, and Ousanding Loan Balances Plan 3: Purchasing house afer 1 years (a age 45) using morgage loans In his case, we consider ha he morgage borrowers do no conrac he morgage loan a his ime and conrac he morgage loan afer 1 years (12 monhs). <Table 1> Informaion abou Morgage plan afer 12 monhs EARN 121 8,527,85 won EXPEN 121 6,954,84 won

24 The Geneva Associaion Eudes e Dossiers no. 32 DIFF 121 1,573,1won Morgage erm (T(a)) Median years o reiremens (MYR) Morgage rae Maximum DTI (=EARN * 33%) Ne asses (NET) 15 yrs (18 mon) years 6.25% per annum 2,842,6 won 23 million won Cumulaive discoun facor (CDF) Base saring amouns A (= DIFF 121 ) 1,573,1 won Maximum morgage loan ( MLOAN ) Required down paymen 252,84, won 18,36, won Maximum House price ( H ) 36,12, won 12 Noe: 1.When we calculae he borrower s fuure values of lefover financial asses (cashes), we use he mean value of ineres raes on ime deposis (=.375 per annum) issued by The Bank of Korea from 1.24 o (1 years). 2. Ne asses (NET): projeced as follows. Iniial chonsei deposi a age 35: Increased chonsei deposi (afer 1 years): Cumulaive DIFF (afer 1 years): Lefover cashes (financial asse): Toal chonsei deposi (non financial asse): Borrower s oal ne asses (afer 1 years): CDF = [( ) ( 1 (.625/12) )] = million won 73 million won 143million won 7 million won 133 million won 23 million won In Plan 3, we assume morgage borrowers can buy he house which evaluaed equal o he housing price righ afer 12 monhs ( H 12 ). According o he value of H 12, we modified he LTV raio, acual MLOAN, and base saring amouns. Table 11 repors hese modified values. <Table 11> Modified Values of Housing Price ( H ), MLOAN, Base Saring Values (A) Ne asses (NET) 23 million won Modified housing price ( H 12 ) 351 million won LTV raio 7 % Acual MLOAN 246 million won Modified base saring amouns (A) 1,535,5 won Lefover financial asses (LFA) 98 million won

25 The Geneva Associaion Eudes e Dossiers no. 32 Noe: 1. LTV raio 2 = loan-o-value raio; 2. LFA = (NET+ Acual MLOAN) - H 3. H H ( 1 + ) 12 = =351 million won 12 g Table 12 and Figure 14 repors he projeced housing prices, lefover financial asses (cashes), and ousanding loan balances (OLB) hrough ime under Plan 3. <Table 12> Projeced Housing Prices, Lefover Cashes, and Ousanding Loan Balances Plan 3 Housing Price Lefover Cash OLB45 Ne Asse N= (2,,) 6,, N=6 (264,996,457) 22,45, ,76,515 N=12 351,115,61 97,551, ,, 22,667,53 N=18 465,221, ,531,3 215,888,77 388,864,493 N=24 616,41,859 23,76,65 142,83,453 74,368,56 N=3 816,733, ,776,319 3,71,283 1,186,438,54 N=36 1,82,157, ,731,81 1,845,889,176 Morgage Plan 3 1,2,, 1,,, 8,, 6,, 4,, 2,, N= N=6 N=12 N=18 N=24 N=3 N=36 Housing Price Lefover Cash OLB45 [Figure 14] Trends of Housing Prices, Lefover Cashes, and Ousanding Loan Balances Figure 15 shows he loan amorizaion and ineres paerns by morgage Plans. Maximum LTV= H *7%; H = he housing price a =.

26 The Geneva Associaion Eudes e Dossiers no PLAN Amorizaion Ineres N 25 PLAN Ineres Amorizaion N 32 PLAN Ineres Amorizaion N [Figure 15] Loan Amorizaion and Ineres Paerns by Morgage Plans We can see he rends of negaive armoizaions in morgage Plan 1 and Plan 2.

27 The Geneva Associaion Eudes e Dossiers no. 32 Plan 4 (Non-Morgage Plan): Purchasing house afer 2 years (a age 55) wihou using morgage loans In his case, we consider ha he home buyers do no conrac he morgage loan and purchase house afer 24 monhs (a age 55). <Table 13> Informaion abou home buyer s economic condiions afer 24 monhs EARN 241 3,57, won EXPEN 241 2,344, won DIFF ,won Median years o reiremens (MYR) Cumulaive DIFF Iniial chonsei deposi a age 35: Increased chonsei deposi (afer 24monhs): Toal chonsei deposi (non financial asse): Ne asses (NET) years 577,244, won 6,, won 252,294, won 312,293, won 637,244, won House price ( H 24 ) 616,41,859 won Lefover financial asses (LFA) [ ] 24 Noe: 1. Cumulaive DIFF = DIFF ( 1 Dg α ) = 1 Dg α = growh rae of DIFF a + α= 1 = α 2. H = 2,, ( 1 + ) (24 ) 2,833,141won Table 14 and Figure 16 repors he projeced housing prices, chonsei prices, and lefover financial asses (cashes) hrough ime under Plan 4. <Table 14> Projeced Lefover Cashes and Housing Prices hrough ime Plan 4 Housing Price Chonsei Price Lefover Cash Ne Asse N= (2,,) 6,, 6,, N=6 (264,996,457) 9,626,261 22,45, ,76,515 N=12 (351,115,61) 136,885,321 65,781,732 22,667,53 N=18 (465,221,963) 26,756,748 16,69, ,447,525 N=24 616,41,859 (312,293,) 2,833, ,244, N=3 816,733, ,348,962 1,92,82,43

28 The Geneva Associaion Eudes e Dossiers no. 32 N=36 1,82,157, ,859,461 1,728,16,836 Plan N= N=6 N=12 N=18 N=24 N=3 N=36 Housing Price Lefover Cash Ne Asse55 [Figure 16] Trends of Housing Prices, Lefover Cashes, and Ne Asses Comparison of Ne Asse Raios According o he resuls from Plan 1 o Plan 4 above, we compared he values of all ne asses o ha of Plan 1. Figure 17 shows he ne asse raios N= N=6 N=12 N=18 N=24 N=3 N=36 Plan1/Plan1 Plan2/Plan1 Plan3/Plan1 Plan4/Plan1 [Figure 17] Comparisons of Ne Asse Raios These analyses shows ha all ne asses raios o Plan 1 (i.e. Plan2/Plan1, Plan3/Plan1, and Plan4/Plan1) represen he values less han 1. and he raios of Plan4 o Plan1 (Plan4/Plan1)

29 The Geneva Associaion Eudes e Dossiers no. 32 have he minimum values. These resuls definiely show he usefulness of morgage loans and ell he fac ha morgage borrowers can ge more ne asses hrough speedy decision of conracing he morgage loans a relaively younger ages. Therefore, morgage borrowers no only can realize he dream of homeownership a an early age bu also increase heir ne asses hrough ime hrough using morgage loans. Reverse Morgage Plan The median years o reiremen (MYR) a age 35 for male was years and MYR a age 35 for female was years. In his case, male s reiremen age will be age and female s reiremen one will be age This paper assumes ha elderly homeowners reire a he end of age 64 and purchase reverse morgage loans a he beginning of age 65, righ afer reiremen in order o simplify he analysis. According o he resuls of morgage loans from Plan 1 o Plan 4, we can calculae he amouns of reverse morgage annuiies. Table 15 repors he poenial maximum levels of monhly paymens (annuiies) which elderly homeowners can borrow using heir housing asses a borrower s age 65. <Table 15> Monhly paymens (A reverse morgage borrower s age 65) Consan Paymens Graduaed Paymens Housing Price 1,82,157, won 1,82,157, won Maximum Lump Sum (LSUM) 462,622,won 462,622,won Cumulaive Discoun Facor (CDF) Monhly paymens 4,548,76 won 3,165,126 won Noe: 1. Maximum LSUM = (Housing Price Up-fron Cos) * LTV; we assume Up-fron Cos=Housing Price *5%, LTV=.45 following he resuls of Ma and Deng (25). 2. T(a) 1 = T(a) 1 CDF consan = px ; r = 1 + c CDF graduaed = px 1 + r (where, he annuiy rae: r =.7 per annum (.58 per monh), c=.3893, and p x = he probabiliy ha a borrower age x=65 will survive o age x+) 3. The level of monhly paymen in he graduaed paymens, 3,165,126 won, represen he base saring value (A) in equaion 1. In he case of female s age 35, he life expecancy was confirmed years. We compared age-earnings expendiures profiles wih he reverse morgage paymens unil reaching o he female s life expecancy (up o years or 558 monhs).

30 The Geneva Associaion Eudes e Dossiers no E+7 Nominal Values of Expendiures and Reverse Morgage Paymens 1.4E+7 1.2E+7 1.E+7 8.E+6 6.E+6 4.E+6 6 Real Values of Expendiures and Reverse Morgage Paymens E EXPEN RMCON RMGRAD EXPEN RMCON RMGRAD [Figure 18] Age-Expendiures Profiles and Trends of Reverse Morgage Paymens To confirm he role of reverse morgage loans as a financial vehicle o supplemen curren social securiy sysem for elderly homeowners in Korea, we compare he real value of expendiures a reiremen wih he real value of graduaed monhly paymens. Table 16 repors he resuls of hese comparisons. <Table 16> Comparison of he Real Values a Reiremen EXPEND: (1) EXPEND*7%: (2) RM: (3) Raio: (3)/(1) Raio: (3)/(2) 3,441,137 won 2,48,796 won 778,449 won Noe: 1. EXPEND: real value of expendiure a reiremen 2. EXPEND*7: Kim (25) approximaely esimaed he level of expendiures afer reiremen would be 68.96% of ha of righ before reiremen in Korea. We assume 7% of expendiures righ before reiremen as he appropriae level of expendiures for elderly homeowners afer reiremen. 3.RM: real value of monhly graduaed paymens from reverse morgage loans. As we confirm in Table 16, he elderly homeowners can receive monhly paymens abou 32% of he required level of expendiures wihou making monhly repaymens. They can reain he homeownership as long as hey reside in he home as heir primary residence. Privae Annuiy Plan Meanime, a reiremen, we assume ha he elderly homeowners preferenially purchase a privae annuiy for fuure expendiures using all lefover financial asses righ before

31 The Geneva Associaion Eudes e Dossiers no. 32 conracing reverse morgage loans. We repor he resuls of graduaed monhly paymens incorporae o he resuls of morgage Plan 1 o Plan 4 above. The cash flows of privae annuiy can be evaluaed as follows 21. <Table 17> Monhly annuiies (a policyholder s age 65) Plan 1 Plan 2 Plan 3 Plan 4 LSUM 899,29,4 won 823,997,2 won 763,731,8 won 645,859,5 won Annuiy 6,152,13 won 5,637,549 won 5,225,231 won 4,418,783 won Real Annuiy 1,518,98 won 1,391,93 won 1,29,13 won 1,91,1 won Noe: 1. Maximum LSUM (annuiy premium) = lefover cash a reiremen 2. Annuiy: value of monhly graduaed paymens (annuiy) 3. Real Annuiy: deflaed o he price level a age 35 We compared he real values of annuiy wih he real value of expendiures (EXPEND*7%) a reiremen. Table 18 shows us he usefulness of morgage loans again as well as ha of a reverse morgage loans. From he resuls of Table 18, we can see ha he morgage Plan 1 can be he bes selecion for borrowers. <Table 18> Comparison of he Real Values a Reiremen Raio Plan 1 Plan 2 Plan 3 Plan 4 Annuiy/ (EXPEND*7%) RM/ (EXPEND*7%) sum In he case of Plan 1, he reired homeowners can ge oal annuiy equal o 95% of required expendiures using heir housing asses and lefover financial asses a reiremen. This paper assumed ha elderly homeowners can buy a privae annuiy using all lefover financial asses. Bu, he elderly homeowners acually may have paid a subsanial porion of lefover financial asses (cashes) for he cos of unexpeced or expeced financial shocks (e.g. heir children s marriage funds). However, considering he naional pension plan or corporae pension plan which covers he primary expendiures, we can recognize he secondary role of reverse morgage loans which covers abou 32% of required expendiures of reired homeowners in For simpliciy of discussion, we use he same formula and creae he same assumpions which used in he reverse morgage model.

32 The Geneva Associaion Eudes e Dossiers no. 32 Korea. Policy Implicaions and Conclusion This paper buil lifeime housing asse plans hrough he inegraion of he morgage and reverse morgage finance sysems following he pah of life cycle. In he morgage research, i creaed a new mehod of graduaed monhly paymens and found ou he dynamic age-earnings and age-expendiures profiles for deermining an appropriae amoun of morgage loans. I also confirmed appropriae erm srucure of morgages from median years o reiremen. In he reverse morgage research, i also focused on a new enure plan and evaluaed he amoun of reverse morgages using he projeced housing price a reiremen. Finally, i analyzed he effec of privae annuiy on evaluaing he available maximum level of expendiure of elderly homeowners. In order o apply he LHAP o he real housing marke in Korea, here however are several facors which in advance should be solved. Firs, in he counry like he Souh Korea where he housing finance marke is significanly weak, a morgage marke should be se up. Forunaely, a morgage sysem was inroduced in 24. Second, he LHAP requires he esablishmen of reverse morgage marke. The large number of elderly households who are house-rich bu cash-poor will increase he necessiy of he LHAP. Third, he LHAP requires he sabilizaion of housing marke because he oal period of LHAP is a leas 5 years or more. In spie of hese preliminary condiions which should be solved, he LHAP will considerably conribue o he soluion of problems of elderly housing and living cos as follows: 1)A LHAP guaranees he living cos as well as he homeownership for he life-ime of each household from is generaion o disappearance. Since each household has he ownership righ o he home, i is differen from permanen renal housing in he socialis counries or welfare housing in he European counries. I also will conribue o elderly households' psychological sabilizaion on he housing asse managemen. 2) A home is very expensive produc relaive o he household's income and composes of a significan proporion of individual wealh. A LHAP plays a role of saving accoun for he firs half of household life-cycle bu guaranees he sabilizaion of living condiions for he second half of household life-cycle. Housing succession o he offspring means he herediy of wealh. I probably violaes he social equiy for he wealh. A LHAP can significanly preven he wealh succession o he offspring. Therefore, i probably conribues o he achievemen of socio-economic jusice. 3) A LHAP provides a new urning poin of welfare policy. Unil now, elderly people who

33 The Geneva Associaion Eudes e Dossiers no. 32 are house-rich bu cash-poor have a difficuly o mainain heir exising living sandards. Supporing he house-rich and cash-poor elderly people is a burden on he welfare budges of governmen. In case which he morgage sysem works well, mos households can own heir housing free of loan when hey reire from heir jobs. Therefore, mos of households are poenial demanders of he LHAP. 4) A basic concep of LHAP can be applied o he liquidaion of mos fixed asses. In he long erm, he liquidaion of all fixed asses including he housing will grealy conribue o he acivaion of regional economics. A LHAP also can be developed o he comprehensive managemen model of individual's wealh in case ha he pension, bond, and oher asses are included in his program. This sudy combines morgage and reverse morgage ino he lifeime housing asses plan considering household s feaures of before and afer reiremen. This lifeime housing asses program guaranees he sabilizaion of living as well as he homeownership for he life-ime of each household from is generaion o disappearance. I migh be conribued o solve an ulimae goal of housing policies. The main findings of his research are as follows. Firs, he homeowners who used morgage loans when hey purchase home definiely can ge more ne asses han who do no use morgage loans hrough he pah of life cycle. Second, morgage borrowers who decide o conrac he morgage loans and purchase home earlier can ge more ne asses han who decide laer. Using morgage loans, borrowers no only can realize he dream of homeownership a an early age bu also increase heir ne asses hrough ime. Finally, he reverse morgage loans can conduc an imporan role for elderly homeowner s welfare afer reiremen. Therefore, homeowners can realize homeownership earlier as well as sabilize he levels of expendiures hrough lifeime by incorporaing morgages and reverse morgages ino he same lifeime housing asse plan. A LHAP is a produc of inegraion of a morgage and reverse morgage sysem, following he race of life-cycle of each household from is generaion o disappearance. The housing services which he LHAP provides is similar o a permanen renal housing bu i also guaranees he borrowers wih he homeownership and he monhly income for he mainenance of living sandard during he life-ime of household. However, public agens should paricipae in he beginning of implemenaion of his program and gradually a privae secor can involve in his program because i has significan risks as above descripions. This paper jus focuses on he heoreical sudy on a LHAP and is simulaion program, and i coninuously requires an empirical sudy which i applies he real housing marke. In spie of hese problems, he number of elderly populaion grows very fas and he proporion of housing equiy in he household's wealh also increases. In oher words, a LHAP is a new paradigm in he housing policy which secures a cerain level of living, he monhly income for he elderly people, and homeownership.