Credit Counseling and Mortgage Termination by Low-Income Households

Valentina Hartarska () and Claudio Gonzalez-Vega ()

The Journal of Real Estate Finance and Economics, 2005, vol. 30, issue 3, 227-243

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 position 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. Copyright Springer Science + Business Media, Inc. 2005

Keywords: credit counseling; low-income housing mortgages; competing risks; default; refinancing (search for similar items in EconPapers)
Date: 2005
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Citations: View citations in EconPapers (16)

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DOI: 10.1007/s11146-005-6405-z

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