Neutral Third-Party Counselling As Nudge Toward Safer Financial Products? The Case of Risky Mortgage Loan Contracts

Abstract

This paper discusses the idea of neutral counseling as a measure of improving decisions of borrowers when choosing a mortgage loan. The developments regarding foreign-currency mortgage loans, popular in Central and Eastern Europe in recent years, illustrate how incorrect mortgage choices may have detrimental effects on borrowers and their families. Taking a skeptical approach toward mandated pre-contractual disclosure as a protection measure for borrowers, the paper advocates neutral counseling of mortgage applicants in case they are offered risky types of mortgages. Drawing on the experience of an American mortgage counseling programme, a set of recommendations is made regarding the design of a possible neutral mortgage counseling scheme. While the counseling solution has imminent limitations, it displays clear potential toward improving the process of financial decision-making.

Keywords: Nudging, Foreign-Currency Mortgage Loans, Financial Consumer, Disclosure, Mortgage Counselling

JEL Classification: K12