Credit Counseling and Mortgage Termination by Low-Income Households

Posted: 22 Oct 2005

See all articles by Valentina Hartarska

Valentina Hartarska

Auburn University - Department of Agricultural Economics and Rural Sociology; Auburn University - Department of Finance

Claudio Gonzalez-Vega

Ohio State University (OSU) - Department of Agricultural, Environmental & Development Economics

Abstract

Published research on credit counseling and mortgage termination is surprisingly scarce, despite substantial growth in this industry. While the purpose of counseling is to assist low-income borrowers to improve their handling of debt and thereby reduce default, counseling may also improve the borrowers' understanding of their financial positions and thus induce optimal mortgage termination. Using a competing-risks framework, we study the effects on default and prepayment of a counseling program implemented in several Midwest states. We find weak evidence of that the default hazard was lower for graduates of the counseling program, but that their default behavior was more optimal. The prepayment hazard was higher for counseled borrowers, but their prepayment behavior was not more optimal. Overall, counseling seems to affect the lenders' profits, but the net effect should be evaluated both in terms of prepayment and default.

Keywords: Credit counseling, low-income housing mortgages, competing risks, default, refinancing

Suggested Citation

Hartarska, Valentina and Gonzalez-Vega, Claudio, Credit Counseling and Mortgage Termination by Low-Income Households. Journal of Real Estate Finance and Economics, Vol. 30, No. 3, 2005, Available at SSRN: https://ssrn.com/abstract=822355

Valentina Hartarska (Contact Author)

Auburn University - Department of Agricultural Economics and Rural Sociology ( email )

Comer Hall
Auburn, AL 36849
United States

Auburn University - Department of Finance ( email )

Auburn, AL 36849
United States

Claudio Gonzalez-Vega

Ohio State University (OSU) - Department of Agricultural, Environmental & Development Economics ( email )

Rural Finance Program
Columbus, OH 43210-1067
United States
614-825-0622 (Phone)

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