Joint liability lending and credit risk: Evidence from the home equity market

Sumit Agarwal, Brent Ambrose, Souphala Chomsisengphet and Chunlin Liu

Journal of Housing Economics, 2016, vol. 32, issue C, 47-66

Abstract: 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 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 (search for similar items in EconPapers)
JEL-codes: D12 D14 G21 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jhouse:v:32:y:2016:i:c:p:47-66

DOI: 10.1016/j.jhe.2016.04.006

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