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Learning to Cope: Voluntary Financial Education Programs and Loan Performance during a Housing Crisis

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  • Agarwal, Sumit

    (Federal Reserve Bank of Chicago)

  • Amromin, Gene

    (Federal Reserve Bank of Chicago)

  • Ben-David, Itzhak

    (Ohio State University)

  • Chomsisengphet, Souphala

    (Office of the Comptroller of the Currency, US Department of the Treasury)

  • Evanoff, Douglas D.

    (Federal Reserve Bank of Chicago)

Abstract

Mortgage counseling is regarded as an integral tool in ensuring appropriate choices by prospective home buyers. We use micro-level data from an urban voluntary counseling program aimed at disadvantaged households to assess its effectiveness. We find substantially lower ex-post delinquency rates among program graduates. This finding is robust to an array of controls and several ways of modeling the probability of selection into counseling treatment. We attribute improved performance to the type of mortgage contract extended to the graduates, to the budgeting and credit management skills taught in the program, and to active post-purchase counseling that seeks to cure delinquency at early stages. The effects appear strongest among the least creditworthy households, suggesting an important role for long-term preparation for homeownership.

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File URL: http://www.cob.ohio-state.edu/fin/dice/papers/2009/2009-23.pdf
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Bibliographic Info

Paper provided by Ohio State University, Charles A. Dice Center for Research in Financial Economics in its series Working Paper Series with number 2009-23.

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Date of creation: Dec 2009
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Handle: RePEc:ecl:ohidic:2009-23

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