Panel Paper: Can Reminders Nudge Seniors to Remember to Pay Their Property Taxes? a Field Experiment with Reverse Mortgage Borrowers

Saturday, November 9, 2019
Plaza Building: Concourse Level, Plaza Ballroom E (Sheraton Denver Downtown)

*Names in bold indicate Presenter

Stephanie Moulton1, Julia Brown2, J. Michael Collins3, Caezilia Loibl1 and Donald Haurin1, (1)The Ohio State University, (2)University of Maryland, (3)University of Wisconsin

A significant risk to the financial security among older homeowners is the failure to pay property taxes. This is a particular concern for reverse mortgage borrowers who have no monthly mortgage payment and therefore do not have escrows for property taxes and homeowner’s insurance. As of 2014, nearly 10 percent of federally insured reverse mortgage loans were in default for not paying property taxes or homeowner’s insurance, placing more than 54,000 senior homeowners at risk of foreclosure (Moulton et al., 2015). Through a randomized field experiment, this study tests the effectiveness of simple, low cost quarterly reminders to pay property taxes on the subsequent loan outcome of reverse mortgage borrowers. In late 2015 and early 2016, 3,000 recent reverse mortgage borrowers were randomly assigned to one of three groups: (1) quarterly reminders by mail; (2) an offer of free telephone counseling, or (3) a control group. We merge administrative data on treatment assignment and take-up with baseline household financial and demographic data collected at the time of counseling, as well as monthly loan data from HUD on the reverse mortgage through October 31, 2017. Default on property taxes and homeowner’s insurance serves as our primary outcome, as reported in HUD loan data.

Using Cox proportional hazards models to estimate the risk of default, we find that low-touch reminders for reverse mortgage borrowers reduce the incidence of tax and insurance default by as much as 37 percent. We find no statistically significant impact of the offer of free financial counseling; however, the take-up for financial counseling was very low. Subsample regressions indicate that the effect size of the reminders treatment is larger for those with a prior mortgage at baseline, relative to those without a prior mortgage. Those with a prior mortgage were more likely to have had an escrow for property taxes and insurance, thus making this group most vulnerable to forgetting to pay property taxes and insurance through the reverse mortgage, and most sensitive to the reminder treatment. From a policy perspective, mailed reminders are less costly than financial counseling and can be easily replicated as part of loan servicing.