Credit Counseling and Mortgage Termination by Low-Income Households

Valentina M. Hartarska and Claudio Gonzalez-Vega

No 132518, 2003 Regional Committee NCT-194, October 6-7, 2003; Kansas City, Missouri from Regional Research Committee NC-1014: Agricultural and Rural Finance Markets in Transition

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 help low-income borrowers to handle better debt, and thus prevent default, counseling could also improve these borrowers understanding of their financial positions and thus affect prepayment. This paper shows that evaluations of counseling programs with a narrow focus on default may miss an important effect that counseling may have on prepayment. We use a competing risks framework to study the effects on both default and prepayment of a counseling program implemented in several Mid-West states. Our results indicate that the default hazard was not lower for the graduates of the counseling program but that the prepayment hazard was higher. Overall, counseling seems to affect lenders’ profits but the net effect should be evaluated both in terms of prepayment and default.

Keywords: Agricultural; Finance (search for similar items in EconPapers)
Pages: 19
Date: 2003
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Persistent link: https://EconPapers.repec.org/RePEc:ags:nc2003:132518

DOI: 10.22004/ag.econ.132518

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