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

15 Pages Posted: 29 Dec 2009 Last revised: 9 May 2015

Sumit Agarwal

Georgetown University - Department of Finance

Gene Amromin

Federal Reserve Bank of Chicago

Itzhak Ben-David

Ohio State University - Fisher College of Business, Finance Department; National Bureau of Economic Research (NBER)

Souphala Chomsisengphet

Office of the Comptroller of the Currency (OCC)

Douglas D. Evanoff

Federal Reserve Bank of Chicago

Date Written: December 28, 2009

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 expost 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.

Keywords: Financial education, Mortgage crisis, Counseling, Mortgage default, Financial literacy, Subprime crisis, Household finance, default, homeowner, loan, debt, household finance, leverage, financial literacy, delinquency, debt literacy, financial planning

JEL Classification: D14, D18, L85, R21

Suggested Citation

Agarwal, Sumit and Amromin, Gene and Ben-David, Itzhak and Chomsisengphet, Souphala and Evanoff, Douglas D., Learning to Cope: Voluntary Financial Education Programs and Loan Performance During a Housing Crisis (December 28, 2009). Charles A. Dice Center Working Paper No. 2009-23 ; AFA 2010 Atlanta Meetings Paper. Available at SSRN: https://ssrn.com/abstract=1529060

Sumit Agarwal

Georgetown University - Department of Finance ( email )

3700 O Street, NW
Washington, DC 20057
United States
202-687-8207 (Phone)

HOME PAGE: http://www.ushakrisna.com

Gene Amromin

Federal Reserve Bank of Chicago ( email )

230 South LaSalle Street
230 S. LaSalle
Chicago, IL 60604
United States
3123225368 (Phone)
3123226011 (Fax)

Itzhak Ben-David (Contact Author)

Ohio State University - Fisher College of Business, Finance Department ( email )

2100 Neil Avenue
Fisher 700D
Columbus, OH 43210-1144
United States
773 988 1353 (Phone)

HOME PAGE: http://fisher.osu.edu/fin/faculty/Ben-David/index.htm

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

HOME PAGE: http://fisher.osu.edu/fin/faculty/Ben-David/

Souphala Chomsisengphet

Office of the Comptroller of the Currency (OCC) ( email )

400 7th Street, SW
Washington, DC 20219
United States
202-649-5533 (Phone)

Douglas D. Evanoff

Federal Reserve Bank of Chicago ( email )

230 South LaSalle Street
Chicago, IL 60604
United States
312-322-5814 (Phone)

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