|
|
|
|
||||
|
||||
Does Mandatory Loan Review Affect Mortgage Contract Choice and Performance?Sumit AgarwalNational University of Singapore Gene AmrominFederal Reserve Bank of Chicago Itzhak Ben-DavidOhio State University - Fisher College of Business, Finance Department Souphala ChomsisengphetGovernment of the United States of America - Office of the Comptroller of the Currency (OCC) Douglas D. EvanoffFederal Reserve Bank of Chicago April 29, 2011 Fisher College of Business Working Paper No. 2008-03-019 Charles A. Dice Center Working Paper No. 2008-20 FDIC Center for Financial Research Working Paper No. 2009-04 EFA 2009 Bergen Meetings Paper AFA 2010 Atlanta Meetings Paper Paolo Baffi Centre Research Paper No. 2009-51 FRB of Chicago Working Paper No. 2009-7 Networks Financial Institute Working Paper 2011-WP-12 Abstract: We explore the effects of mandatory third-party review of mortgage contracts on the terms, availability, and performance of mortgage credit. Our study is based on a legislative pilot carried out by the State of Illinois in a selected set of zip codes in 2006. Mortgage applicants with low FICO scores were required to attend loan reviews by financial counselors. Applicants with higher FICO scores had to attend counseling only if they chose “risky mortgages.” We find that low-FICO applicants for whom counselor review was mandatory did not materially change their contract choice. Conversely, applicants who could avoid counseling by choosing less risky mortgages did so. Although ex post default rates among low-FICO borrowers in the pilot program declined by 25%, we find that the educational component of counselor review played only a minor role. Instead, external review presented strong incentives for lenders to impose tighter ex ante screening on low-credit-quality borrowers.
Number of Pages in PDF File: 52 Keywords: Financial counseling, Screening,Subprime crisis, Household finance JEL Classification: D14, D18, L85, R21 working papers seriesDate posted: October 20, 2008 ; Last revised: May 14, 2011Suggested CitationContact Information
|
|
|||||||||||||||||||||||||||||||||||
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
FAQ
Terms of Use
Privacy Policy
Copyright
This page was processed by apollo2 in 0.484 seconds
