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A Comparison Of Option-Theoretic And Choice-Theoretic Approaches To Evaluating Alternative Financial Technologies For Mortgage Loans To Low-Income Households

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  • Hartarska, Valentina M.
  • Gonzalez-Vega, Claudio

Abstract

This paper evaluates the efficacy of two alternative lending technologies - the traditional banking technology and a cash flow based counseling program - by using competing risks (option-based) and choice theoretic approaches. We find evidence to support the notion that low-income borrowers have some degree of financial sophistication, as they prepay the mortgage loan by considering the current value of the call option. The evidence also suggests that borrower heterogeneity and insolvency affect mortgage termination.

Suggested Citation

  • Hartarska, Valentina M. & Gonzalez-Vega, Claudio, 2002. "A Comparison Of Option-Theoretic And Choice-Theoretic Approaches To Evaluating Alternative Financial Technologies For Mortgage Loans To Low-Income Households," 2002 Annual meeting, July 28-31, Long Beach, CA 19645, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    • Handle: RePEc:ags:aaea02:19645
    DOI: 10.22004/ag.econ.19645
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