Reverse Mortgage Loan: Business Context & Problem Statement
Reverse Mortgage Loan (RML) enables Senior Citizens to avail of periodical payments from a lender against the mortgage of his/her house to supplement their income while remaining the owner and occupying the house. Interest on the payments availed will be accumulated. One of the types of Reverse mortgage is Home Equity Conversion Mortgage (HECM), insured by the Federal Housing Administration (FHA) and constituting over 90% of all reverse mortgage loans originated in the U.S. market2.
“A HECM loan is terminated when the borrower dies or permanently moves out the house. Understanding termination outcomes of HECM loans is essential for the FHA insurance program and the long-term viability of the HECM program”2
The data is downloaded from HUD.GOV websire4. All loans originated in 2003 and 2004 are considered for below example. If the termination date is populated, the HECM loan is considered as close. Age and Gender of borrowers are used below example to illustrate Decision Tree Building process.