Banks support 'viable' mortgage plan

Sean Chen, chairman of the Cabinet-level Financial Supervisory Commission (FSC), said Monday that the FSC will push for a governmental reverse mortgage mechanism to cushion the nation's growing elderly population.

A reverse mortgage is a special type of home loan available to seniors to convert a portion of their home equity into cash. The equity built up by senior homeowners' conventional mortgage payments can be paid to them by banks in one lump sum or multiple payments. The bank will own the property of the original owner when he or she dies, sells his or her home or violates the contract.

Chen pointed out that the FSC has been considering reverse mortgages for years, but determined that such a social welfare program was not viable for banks to administer alone. A new reverse mortgage program will require cooperation of various government departments to work, Chen said. Currently, retired Taiwanese citizens receive pensions from their employers.

BOT Chairwoman Susan Chang, said that banks in Taiwan will support the government's plan if proven “viable”. Taiwanese banks will advise the government on the reverse mortgage plan if requested, Chang said.

Premier Wu Den-yih pointed out yesterday that the Executive Yuan will evaluate the feasibility of the reverse mortgage proposal within a year. Wu shied away from fully supporting the plan, in part because the program requires careful coordination that has yet to be worked out.

According to the banks, one of the biggest risks of reverse mortgages is the valuation of each property, dependent upon the indeterminable factor of the owner's life expectancy. The older the owner, the smaller the amount of money paid to them by the bank, decreasing the risk borne by the bank.

If a bank estimates a reverse mortgage will be paid out for 20 to 30 years, it will naturally be more conservative in terms of pricing.

Moreover, if a mortgage is expected to last for two to three decades, it will present a challenge to the bank to evaluate the price of a property 20 years in the future.

Another challenge to launching the program is that Taiwanese senior citizens tend to will their properties to their children, who in turn care for them in their old age. As a result, reverse mortgages will be needed mostly by seniors without strong family ties.

Tsai Shun-hsiung, head of the Council for Economic Planning and Development (CEPD) was quoted by the United News Daily as saying that while he did not oppose reverse mortgages, providing a safety net for all elderly citizens —not just homeowners—should be a priority.

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