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

Sumit Agarwal, Gene Amromin, Itzhak Ben-David, Souphala Chomsisengphet and Douglas Evanoff
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Souphala Chomsisengphet: Office of the Comptroller of the Currency, US Department of the Treasury

Working Paper Series from Ohio State University, Charles A. Dice Center for Research in Financial Economics

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 ex-post 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.

JEL-codes: D14 D18 L85 R21 (search for similar items in EconPapers)
Date: 2009-12
New Economics Papers: this item is included in nep-ure
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