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Credit counseling and mortgage termination by low-income households

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Author Info
Claudio Gonzalez-Vega
Valentina Hartarska
Abstract

Published research on credit counseling and mortgage termination is surprisingly scarce, despite substantial growth in this industry. While the purpose of counseling is to assist low-income borrowers to improve their handling of debt and thereby reduce default, counseling may also improve the borrowers’ understanding of their financial position and thus induce optimal mortgage termination. Using a competing-risks framework, we study the effects on default and prepayment of a counseling program implemented in several Midwest states. We find weak evidence of that the default hazard was lower for graduates of the counseling program, but that their default behavior was more optimal. The prepayment hazard was higher for counseled borrowers, but their prepayment behavior was not more optimal. Overall, counseling seems to affect the lenders’ profits, but the net effect should be evaluated both in terms of prepayment and default.

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Article provided by Federal Reserve Bank of Chicago in its journal Proceedings.

Volume (Year): (2005)
Issue (Month): Apr ()
Pages:
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Handle: RePEc:fip:fedhpr:y:2005:i:apr:x:14

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Related research
Keywords: Mortgage loans ; Credit control;

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Yongheng Deng & John M. Quigley & Robert Van Order, . "Mortgage Terminations, Heterogeneity and the Exercise of Mortgage Options," Zell/Lurie Center Working Papers 322, Wharton School Samuel Zell and Robert Lurie Real Estate Center, University of Pennsylvania. [Downloadable!] (restricted)
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  2. Archer, Wayne R & Ling, David C & McGill, Gary A, 2003. "Household Income, Termination Risk and Mortgage Pricing," The Journal of Real Estate Finance and Economics, Springer, vol. 27(1), pages 111-38, July. [Downloadable!] (restricted)
  3. Alan Mallach, 2000. "Home ownership education and counseling: issues in research and definition," Community Affairs Discussion Paper 00-01, Federal Reserve Bank of Philadelphia. [Downloadable!]
  4. Beatriz Armendáriz de Aghion & Jonathan Morduch, 2000. "Microfinance Beyond Group Lending," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 8(2), pages 401-420, July. [Downloadable!] (restricted)
  5. Stavros Peristiani & Paul Bennett & Gordon Monsen & Richard Peach & Jonathan Raiff, 1997. "Credit, equity, and mortgage refinancings," Economic Policy Review, Federal Reserve Bank of New York, issue Jul, pages 83-99. [Downloadable!]
  6. Chaves, Rodrigo A. & Gonzalez-Vega, Claudio, 1996. "The design of successful rural financial intermediaries: Evidence from Indonesia," World Development, Elsevier, vol. 24(1), pages 65-78, January. [Downloadable!] (restricted)
  7. Kau, James B, et al, 1995. "The Valuation at Origination of Fixed-Rate Mortgages with Default and Prepayment," The Journal of Real Estate Finance and Economics, Springer, vol. 11(1), pages 5-36, July.
  8. Quigley, John M & Van Order, Robert, 1995. "Explicit Tests of Contingent Claims Models of Mortgage Default," The Journal of Real Estate Finance and Economics, Springer, vol. 11(2), pages 99-117, September.
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  9. Deng, Yongheng, 1997. "Mortgage Termination: An Empirical Hazard Model with a Stochastic Term Structure," The Journal of Real Estate Finance and Economics, Springer, vol. 14(3), pages 309-31, May. [Downloadable!] (restricted)
  10. Goldberg, Gerson M. & Harding, John P., 2003. "Investment characteristics of low- and moderate-income mortgage loans," Journal of Housing Economics, Elsevier, vol. 12(3), pages 151-180, September. [Downloadable!] (restricted)
  11. Michael E. Staten & Gregory Elliehausen & E. Christopher Lundquist, 2003. "The impact of credit counseling on subsequent borrower credit usage and payment behavior," Proceedings, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  12. Pavlov, Andrey D, 2001. "Competing Risks of Mortgage Termination: Who Refinances, Who Moves, and Who Defaults?," The Journal of Real Estate Finance and Economics, Springer, vol. 23(2), pages 185-211, September. [Downloadable!] (restricted)
  13. Kau, James B, et al, 1992. "A Generalized Valuation Model for Fixed-Rate Residential Mortgages," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 24(3), pages 279-99, August. [Downloadable!] (restricted)
  14. Archer, Wayne R. & Ling, David C. & McGill, Gary A., 1996. "The effect of income and collateral constraints on residential mortgage terminations," Regional Science and Urban Economics, Elsevier, vol. 26(3-4), pages 235-261, June. [Downloadable!] (restricted)
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