Reverse mortgages seem like a great idea for hordes of baby boomers who don’t have enough income to maintain their lifestyles, or – worse – to buy basic necessities when they retire. Although some advisors and academics have demonstrated how reverse mortgages are good wealth management tools for certain clients, a new working paper from the World Bank examines why they haven’t worked to solve inadequate retirement savings and longevity risk.

The paper, “Reverse Mortgages, Financial Inclusion and Economic Development: Potential Benefits and Risks,” noted serious challenges facing pension systems and the risk of old-age poverty; the drivers of those risks include aging societies, low interest rates, low retirement plan contribution rates, generous retirement ages and early withdrawal rules. Many studies suggest reverse mortgages could be a good tool to supplement pension income or act as insurance against financial shocks, such as health expenses, the paper observes. In particular, reverse mortgages could be especially beneficial for very elderly women, who live longer and have lower income than most men, and “house rich, cash poor” households. But a shortage of supply from issuers and lack of consumer demand have resulted in reverse mortgages, for most people, still being products of last resort rather than used for prudent retirement planning. The paper, which examines many other studies and was written by Peter Knaak, Margaret Miller and Fiona Stewart of the World Bank, also outlines what would need to happen for this to change.

In fact, banks in both rich and developing countries have exited the reverse mortgage market in recent years, despite the fact that only a small group of them entered the business in the first place, the paper adds. The products are relatively complex and are difficult to understand. Their reputation has been tainted by cases of fraud and sales to inappropriate customers. And they create other key concerns for borrowers: How will the reverse mortgage income affect eligibility for other need-based benefits? If I move out of my house and into a nursing home, what happens? Why are the fees on reverse mortgages so high?

The paper looks at reverse mortgage use around the world, and notes the United States is the leader, although the market is still small. “Growth rates picked up in the 2000s as housing prices continued to rise. While low-income areas were overrepresented in the RM market in the 1990s, residents living in high-income zip codes were equally likely to close an RM as poorer ones in the 2000s. Recent data suggest that the trend may have reverted again in the 2010s, since RM market penetration is currently much higher in the bottom income quintile than the elderly homeowner population at large …” the paper says.

In the U.S., 68% of reverse mortgage borrowers opt for a home equity line of credit (HELOC) and most are using it to reduce household debt rather than supplement income. Financial advisors have helped some retirees use such lines of credit in specialized ways, such as to provide retirement income while delaying Social Security, says advisor and actuary Joe Tomlinson. Others, such as retirement income professor Wade Pfau, say a reverse mortgage can be used to preserve an investment portfolio and create a net positive result, despite its costs.