Foreclosure Kids: Examining the Early Adult Credit Usage of Adolescents Affected by Foreclosure

Alaina Barca, Larry Santucci and Leigh-Ann Schultz
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Alaina Barca: https://www.philadelphiafed.org/our-people/alaina-barca

No 22-21, Working Papers from Federal Reserve Bank of Philadelphia

Abstract: We investigate the long-term effects of foreclosure-induced relocations on adolescents and their subsequent use of credit. We ask whether individuals who experience a foreclosure-induced move between the ages of 10 and 17 are more likely to exhibit signs of credit scarring later in life. To establish a set of counterfactual outcomes, we implement propensity score matching with exact matching on certain characteristics and regression adjustment of the remaining covariate imbalances. We then compare the credit behavior of individuals who experienced a foreclosure-induced move in adolescence to similar individuals who neither experienced a foreclosure nor moved during adolescence. We find that young adults who experience a foreclosure-induced move tend to spend more time with one or more tradelines in a state of severe delinquency and tend to seek credit at a higher rate, which lowers their credit score trajectory relative to individuals who did not experience a foreclosure or a move in adolescence. This association is most evident within the group of children whose parents had nonprime credit scores one year prior to mortgage origination. Delinquency and low credit scores are also more pronounced in the group of adolescents who were between the ages of 10 and 14 at the time of foreclosure.

Keywords: foreclosure; credit scores; intergenerational credit; household finance (search for similar items in EconPapers)
JEL-codes: D14 G21 R20 (search for similar items in EconPapers)
Pages: 38
Date: 2022-08-24
New Economics Papers: this item is included in nep-ure
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DOI: 10.21799/frbp.wp.2022.21

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