Joint Liability Lending and Credit Risk: Evidence from the Home Equity Market
19 Pages Posted: 2 Aug 2010
Date Written: July 30, 2010
Using a unique dataset of home equity credit contracts, we examine the benefits of joint liability lending. Our results show that the risk of default for joint borrowers with similar risk scores is significantly lower than the risk associated with single borrowers. However, when joint borrowers have divergent risk scores, the risk of default is higher than the single borrowers. Our results indicate that the lower risk associated with joint liability is largely dependent upon the similarity of risk characteristics (profiles) of the joint borrowers. Our results suggest that joint liability lending per say does not reduce credit risk.
Keywords: Consumer Credit, Mortgages, Micro-finance, Information Asymmetry, household finance
JEL Classification: G21, D12, D14
Suggested Citation: Suggested Citation