Credit Counseling and Mortgage Termination by Low-Income Households
Published research on credit counseling and mortgage termination is surprisingly scarce, despite substantial growth in this industry. While the purpose of counseling is to help low-income borrowers to handle better debt, and thus prevent default, counseling could also improve these borrowers understanding of their financial positions and thus affect prepayment. This paper shows that evaluations of counseling programs with a narrow focus on default may miss an important effect that counseling may have on prepayment. We use a competing risks framework to study the effects on both default and prepayment of a counseling program implemented in several Mid-West states. Our results indicate that the default hazard was not lower for the graduates of the counseling program but that the prepayment hazard was higher. Overall, counseling seems to affect lenders’ profits but the net effect should be evaluated both in terms of prepayment and default.
|Date of creation:||2003|
|Contact details of provider:|| Web page: http://www.agfin.ifas.ufl.edu/|
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- John M. Quigley., 1993.
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- Deng, Yongheng, 1997.
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- Yongheng Deng, "undated". "Mortgage Termination: An Empirical Hazard Model with Stochastic Term Structure," Working Papers _002, University of California at Berkeley, Econometrics Laboratory Software Archive.
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