The Effects of Mandated Financial Counseling on Household Mortgage Decisions: Evidence from a Natural Experiment
We explore the effects of mandated financial counseling to borrowers on the terms and availability of mortgage credit. Our study is based on a natural experiment in Cook County, Illinois that took place in 2006. The County issued a legislation that required low credit mortgage borrowers in 10 zip codes in Cook County to take financial counseling before accepting loan proposals from state-licensed lenders. Our results are based on a difference-in-differences analysis. We document that as a consequence of the legislation, both supply and demand of credit declined, with marginal borrowers being pushed out of the market. Due to the change in composition of buyers, market adjusted property prices increased over the period and the remaining treated borrowers borrowed at lower rates (controlling for credit quality). The fraction of full documentation loans increased over the treatment period.
|Date of creation:||Oct 2008|
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Web page: http://www.cob.ohio-state.edu/fin/dice/list.htm
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- Sumit Agarwal & John C. Driscoll & Xavier Gabaix & David I. Laibson, 2007.
"The age of reason: financial decisions over the lifecycle,"
Working Paper Series
WP-07-05, Federal Reserve Bank of Chicago.
- Sumit Agarwal & John C Driscoll & Xavier Gabaix & David Laibson, 2007. "The Age of Reason: Financial Decisions Over the Lifecycle," Levine's Bibliography 122247000000001752, UCLA Department of Economics.
- Sumit Agarwal & John C. Driscoll & Xavier Gabaix & David Laibson, 2007. "The Age of Reason: Financial Decisions Over the Lifecycle," NBER Working Papers 13191, National Bureau of Economic Research, Inc.
- Xavier Gabaix & John C. Driscoll & David Laibson & Sumit Agarwal, 2008. "The Age of Reason: Financial Decisions Over the Lifecycle," 2008 Meeting Papers 322, Society for Economic Dynamics.
- Hirshleifer, David, 2007.
"Psychological Bias as a Driver of Financial Regulation,"
5129, University Library of Munich, Germany.
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- Ai, Chunrong & Norton, Edward C., 2003. "Interaction terms in logit and probit models," Economics Letters, Elsevier, vol. 80(1), pages 123-129, July.
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