IDEAS home Printed from https://ideas.repec.org/a/wly/jpamgt/v35y2016i1p145-172.html
   My bibliography  Save this article

The Influence of Homebuyer Education on Default and Foreclosure Risk: A Natural Experiment

Author

Listed:
  • Scott R. Brown

Abstract

The recent housing crisis has generated debate over the benefits and risks of policies and programs promoting homeownership for low and moderate income households. One important facet of this conversation is whether prepurchase homebuyer education (HBE) is effective in reducing default or foreclosure risk. Studies to date have primarily focused on default risk and have faced challenges in accounting for borrower selection into HBE. This study analyzes the outcomes of a natural experiment in the provision of a classroom‐based HBE program during the start‐up phase of a down payment assistance loan program at Tennessee's state housing finance agency in 2002. A competing risks analysis of monthly payment data from 2002 to 2009 for 732 mortgages indicates that, after controlling for borrower, mortgage, and economic factors, HBE did not reduce default risk, but was associated with 42 percent lower odds of foreclosure. Among borrowers who defaulted, HBE was associated with an increased probability of curing a first default and of avoiding foreclosure post‐default. Policymakers should consider the timing and intensity of HBE programs needed to influence default risk and how HBE may promote sustainable homeownership by influencing borrowers’ help‐seeking behavior and strategies for resolving defaults.

Suggested Citation

  • Scott R. Brown, 2016. "The Influence of Homebuyer Education on Default and Foreclosure Risk: A Natural Experiment," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 35(1), pages 145-172, January.
    • Handle: RePEc:wly:jpamgt:v:35:y:2016:i:1:p:145-172
    DOI: 10.1002/pam.21877
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1002/pam.21877
    Download Restriction: no
    File URL: https://libkey.io/10.1002/pam.21877?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Peter Elmer & Steven Seelig, 1999. "Insolvency, Trigger Events, and Consumer Risk Posture in the Theory of Single-Family Mortgage Default," Journal of Housing Research, Taylor & Francis Journals, vol. 10(1), pages 1-25, January.
    2. Foote, Christopher L. & Gerardi, Kristopher & Willen, Paul S., 2008. "Negative equity and foreclosure: Theory and evidence," Journal of Urban Economics, Elsevier, vol. 64(2), pages 234-245, September.
    3. Lei Ding & Roberto G. Quercia & Wei Li & Janneke Ratcliffe, 2011. "Risky Borrowers or Risky Mortgages Disaggregating Effects Using Propensity Score Models," Journal of Real Estate Research, American Real Estate Society, vol. 33(2), pages 245-278.
    4. J. Collins, 2007. "Exploring the Design of Financial Counseling for Mortgage Borrowers in Default," Journal of Family and Economic Issues, Springer, vol. 28(2), pages 207-226, June.
    5. Meier, Stephan & Sprenger, Charles D., 2013. "Discounting financial literacy: Time preferences and participation in financial education programs," Journal of Economic Behavior & Organization, Elsevier, vol. 95(C), pages 159-174.
    6. Shannon Van Zandt & William M. Rohe, 2011. "The sustainability of low-income homeownership: the incidence of unexpected costs and needed repairs among low-income home buyers," Housing Policy Debate, Taylor & Francis Journals, vol. 21(2), pages 317-341, March.
    7. Yongheng Deng & John M. Quigley & Robert Van Order, 2000. "Mortgage Terminations, Heterogeneity and the Exercise of Mortgage Options," Econometrica, Econometric Society, vol. 68(2), pages 275-308, March.
    8. J. Michael Collins & Maximilian D. Schmeiser & Carly Urban, 2013. "Protecting Minority Homeowners: Race, Foreclosure Counseling and Mortgage Modifications," Journal of Consumer Affairs, Wiley Blackwell, vol. 47(2), pages 289-310, July.
    9. Lei Ding & Roberto G. Quercia & Carolina K. Reid & Alan M. White, 2012. "The Impact of Federal Preemption of State Antipredatory Lending Laws on the Foreclosure Crisis," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 31(2), pages 367-387, March.
    10. Valentina Hartarska & Claudio Gonzalez-Vega, 2005. "Credit Counseling and Mortgage Termination by Low-Income Households," The Journal of Real Estate Finance and Economics, Springer, vol. 30(3), pages 227-243, April.
    11. Roberto G. Quercia & Michael A. Stegman & Walter R. Davis, 2007. "The impact of predatory loan terms on subprime foreclosures: The special case of prepayment penalties and balloon payments," Housing Policy Debate, Taylor & Francis Journals, vol. 18(2), pages 311-346, January.
    12. Atif Mian & Amir Sufi, 2009. "The Consequences of Mortgage Credit Expansion: Evidence from the U.S. Mortgage Default Crisis," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 124(4), pages 1449-1496.
    13. Hartarska, Valentina & Gonzalez-Vega, Claudio, 2006. "Evidence on the effect of credit counseling on mortgage loan default by low-income households," Journal of Housing Economics, Elsevier, vol. 15(1), pages 63-79, March.
    14. J. Michael Collins & Maximilian D. Schmeiser, 2013. "The Effects of Foreclosure Counseling for Distressed Homeowners," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 32(1), pages 83-106, January.
    15. Brent W. Ambrose & Charles A. Capone, 1998. "Modeling the Conditional Probability of Foreclosure in the Context of Single‐Family Mortgage Default Resolutions," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 26(3), pages 391-429, September.
    16. Roberto Quercia & Jonathan Spader, 2008. "Does homeownership counseling affect the prepayment and default behavior of affordable mortgage borrowers?," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 27(2), pages 304-325.
    17. Stephanie Moulton & J. Michael Collins & Cäzilia Loibl & Anya Samek, 2015. "Effects of Monitoring on Mortgage Delinquency: Evidence From a Randomized Field Study," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 34(1), pages 184-207, January.
    18. Lei Ding & Roberto Quercia & Wei Li & Janneke Ratcliffe, 2011. "Risky Borrowers or Risky Mortgages Disaggregating Effects Using Propensity Score Models," Journal of Real Estate Research, Taylor & Francis Journals, vol. 33(2), pages 245-278, January.
    19. Sumit Agarwal & Gene Amromin & Itzhak Ben-David & Souphala Chomsisengphet & Douglas D. Evanoff, 2010. "Learning to Cope: Voluntary Financial Education and Loan Performance during a Housing Crisis," American Economic Review, American Economic Association, vol. 100(2), pages 495-500, May.
    20. Roberto Quercia & Lucy Gorham & William Rohe, 2006. "Sustaining homeownership: The promise of postpurchase services," Housing Policy Debate, Taylor & Francis Journals, vol. 17(2), pages 309-339.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Mats Wilhelmsson & Jianyu Zhao, 2018. "Risk Assessment of Housing Market Segments: The Lender’s Perspective," JRFM, MDPI, vol. 11(4), pages 1-22, October.
    2. Robert Argento & Lariece Brown & Sergei Koulayev & Grace Li & Marina Myhre & Forrest W. Pafenberg & Saty Patrabansh, 2018. "First-Time Homebuyer Counseling and the Mortgage Selection Experience in the United States: Evidence from the National Survey of Mortgage Originations," NMDB Staff Working Papers 18-02, Federal Housing Finance Agency.
    3. Li, Zhiyong & Li, Aimin & Bellotti, Anthony & Yao, Xiao, 2023. "The profitability of online loans: A competing risks analysis on default and prepayment," European Journal of Operational Research, Elsevier, vol. 306(2), pages 968-985.
    4. Chen, Catherine, 2023. "Framing energy-efficiency programs: A survey experiment," Energy Policy, Elsevier, vol. 183(C).
    5. Erik Hembre & Stephanie Moulton & Matthew Record, 2021. "Low‐Income Homeownership and the Role of State Subsidies: A Comparative Analysis of Mortgage Outcomes," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 40(1), pages 78-106, January.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Stephanie Moulton & J. Michael Collins & Cäzilia Loibl & Anya Samek, 2015. "Effects of Monitoring on Mortgage Delinquency: Evidence From a Randomized Field Study," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 34(1), pages 184-207, January.
    2. Maximilian Schmeiser & Matthew Gross, 2016. "The Determinants of Subprime Mortgage Performance Following a Loan Modification," The Journal of Real Estate Finance and Economics, Springer, vol. 52(1), pages 1-27, January.
    3. Stephanie Moulton & Cäzilia Loibl & Anya Samak & J. Michael Collins, 2013. "Borrowing Capacity and Financial Decisions of Low-to-Moderate Income First-Time Homebuyers," Journal of Consumer Affairs, Wiley Blackwell, vol. 47(3), pages 375-403, November.
    4. Tim Kaiser & Lukas Menkhoff, 2017. "Does Financial Education Impact Financial Literacy and Financial Behavior, and If So, When?," The World Bank Economic Review, World Bank, vol. 31(3), pages 611-630.
    5. Erik Hembre & Stephanie Moulton & Matthew Record, 2021. "Low‐Income Homeownership and the Role of State Subsidies: A Comparative Analysis of Mortgage Outcomes," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 40(1), pages 78-106, January.
    6. Margaret Miller & Julia Reichelstein & Christian Salas & Bilal Zia, 2015. "Can You Help Someone Become Financially Capable? A Meta-Analysis of the Literature," The World Bank Research Observer, World Bank, vol. 30(2), pages 220-246.
    7. Andrew Carswell, 2009. "Does Housing Counseling Change Consumer Financial Behaviors? Evidence from Philadelphia," Journal of Family and Economic Issues, Springer, vol. 30(4), pages 339-356, December.
    8. Asish Saha & Hock-Eam Lim & Goh-Yeok Siew, 2021. "Housing Loan Repayment Behaviour in Malaysia: An Analytical Insight," International Journal of Business and Economics, School of Management Development, Feng Chia University, Taichung, Taiwan, vol. 20(2), pages 1-19, September.
    9. John Y. Campbell, 2013. "Mortgage Market Design," Review of Finance, European Finance Association, vol. 17(1), pages 1-33.
    10. William D. Larson, 2023. "The riskiness of outstanding mortgages in the United States, 1999–2019," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 51(2), pages 279-310, March.
    11. Steven Laufer, 2018. "Equity Extraction and Mortgage Default," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 28, pages 1-33, April.
    12. Christopher Foote & Kristopher Gerardi & Lorenz Goette & Paul Willen, 2010. "Reducing Foreclosures: No Easy Answers," NBER Chapters, in: NBER Macroeconomics Annual 2009, Volume 24, pages 89-138, National Bureau of Economic Research, Inc.
    13. Mocetti, Sauro & Viviano, Eliana, 2017. "Looking behind mortgage delinquencies," Journal of Banking & Finance, Elsevier, vol. 75(C), pages 53-63.
    14. Guiso, Luigi & Sodini, Paolo, 2013. "Household Finance: An Emerging Field," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, volume 2, chapter 0, pages 1397-1532, Elsevier.
    15. Lei Ding & Roberto G. Quercia & Janneke Ratcliffe, 2008. "Post-purchase Counseling and Default Resolutions among Low- and Moderate-Income Borrowers," Journal of Real Estate Research, American Real Estate Society, vol. 30(3), pages 315-344.
    16. Guiso, Luigi & Zingales, Luigi & Sapienza, Paola, 2009. "Moral and Social Constraints to Strategic Default on Mortgages," CEPR Discussion Papers 7352, C.E.P.R. Discussion Papers.
    17. Yusuf VARLI & Gökhan ÖVENÇ, 2019. "Dynamic Analysis of Defaults and Prepayments in the Turkish Mortgage Market," Sosyoekonomi Journal, Sosyoekonomi Society, issue 27(39).
    18. Atif Mian & Amir Sufi & Francesco Trebbi, 2015. "Foreclosures, House Prices, and the Real Economy," Journal of Finance, American Finance Association, vol. 70(6), pages 2587-2634, December.
    19. Chao Tian & Roberto Quercia & Sarah Riley, 2016. "Unemployment as an Adverse Trigger Event for Mortgage Default," The Journal of Real Estate Finance and Economics, Springer, vol. 52(1), pages 28-49, January.
    20. Kristopher Gerardi & Kyle F. Herkenhoff & Lee E. Ohanian & Paul S. Willen, 2018. "Can’t Pay or Won’t Pay? Unemployment, Negative Equity, and Strategic Default," The Review of Financial Studies, Society for Financial Studies, vol. 31(3), pages 1098-1131.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wly:jpamgt:v:35:y:2016:i:1:p:145-172. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www3.interscience.wiley.com/journal/34787/home .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.