How Does Financial Literacy Affect Mortgage Default
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Author | : Sumit Agarwal |
Publisher | : |
Total Pages | : 48 |
Release | : 2017 |
Genre | : |
ISBN | : |
This paper uses a dataset from one of the leading subprime lenders in America, containing detailed information on borrower and loan characteristics, finds that borrowers from the financial industry, who have higher financial literacy, are less likely to default. This effect cannot be explained by borrower characteristics such as income and education, loan terms, property characteristics, or geographic effects. We also find there are variations in this effect of financial literacy for different types of borrowers or different kinds of loans. Our results indicate that financial literacy plays an important part in repayment behavior and have helpful policy implications.
Author | : Kristopher Gerardi |
Publisher | : DIANE Publishing |
Total Pages | : 54 |
Release | : 2010-10 |
Genre | : Language Arts & Disciplines |
ISBN | : 143793398X |
Investigates whether a particular aspect of borrowers' financial literacy ¿ their numerical ability ¿ may have played a role in the subprime mortgage collapse. The authors measure several aspects of financial literacy and cognitive ability in a survey of subprime mortgage borrowers who took out mortgages in 2006 or 2007 and match these measures to objective data on mortgage characteristics and repayment performance. The result: a large and statistically significant negative correlation between numerical ability and various measures of delinquency and default. Foreclosure starts are approximately 2/3 lower in the group with the highest measured level of numerical ability compared with the group with the lowest measured level. Illus.
Author | : Kristopher Gerardi |
Publisher | : |
Total Pages | : 54 |
Release | : 2014 |
Genre | : |
ISBN | : |
The exact cause of the massive defaults and foreclosures in the U.S. subprime mortgage market is still unclear. This paper investigates whether a particular aspect of borrowers' financial literacy - their numerical ability - may have played a role. We measure several aspects of financial literacy and cognitive ability in a survey of subprime mortgage borrowers who took out mortgages in 2006 or 2007 and match these measures to objective data on mortgage characteristics and repayment performance. We find a large and statistically significant negative correlation between numerical ability and various measures of delinquency and default. Foreclosure starts are approximately two-thirds lower in the group with the highest measured level of numerical ability compared with the group with the lowest measured level. The result is robust to controlling for a broad set of sociodemographic variables and not driven by other aspects of cognitive ability or the characteristics of the mortgage contracts. Our results raise the possibility that limitations in certain aspects of financial literacy played an important role in the subprime mortgage crisis.
Author | : James Conklin |
Publisher | : |
Total Pages | : |
Release | : 2015 |
Genre | : |
ISBN | : |
This paper examines the relationship between broker-borrower interaction in the origination process and subsequent mortgage performance. I show that face-to-face interaction between a mortgage broker and borrower before the loan funds is associated with lower levels of ex post default. The relation between face-to-face broker-borrower interaction and mortgage performance holds only for borrowers that have characteristics associated with low levels of financial literacy. Specifically, face-to-face interaction is negatively related to default for minorities, borrowers located in areas with low levels of education, low-income borrowers, and borrowers with low FICO scores. My results suggest that face-to-face interaction between the mortgage broker and borrower may reduce problems associated with financial illiteracy.
Author | : Jennifer Suzanne Kempton Dudley |
Publisher | : |
Total Pages | : 62 |
Release | : 2018 |
Genre | : |
ISBN | : |
Sixty percent of Americans borrow student loans in order to access higher education. More than $100 billion of student debt is delinquent or defaulted. The student-level impact is palpable as defaults results in life-altering negative impacts for student borrowers. However, high cohort default rates can result in decertification by the Department of Education for colleges and universities. Financial literacy education can help students properly handle finances and prepare for personal economic crises. Therefore, it is possible to test the effect of financial literacy program on cohort default. Schools have an opportunity to invest in their students' social and human capital by offering financial literacy programs. Accordingly, this research explores the impact of schools' financial literacy programs on the likelihood of student loan default. Focusing on organization-level solutions to student loan default empowers schools to address their cohort default rates. Three hypotheses are presented. The first is that mandatory financial literacy programs are related to lower default rates. The second is that comprehensive programs are related to lower default rates. The final hypothesis says that repayment rates are a mediating factor in the relationship between financial literacy program characteristics and default rates, because default rates should fall as students make payments towards their principal balances. Results indicate that financial literacy education does have an impact on default rates with repayment rates mediating the relationship. However, while optional programs are frequently available, mandatory programs are not common enough in the sample to test the first hypothesis and program content has a significant, though unsubstantial impact on default rate.
Author | : Kristopher Gerardi |
Publisher | : DIANE Publishing |
Total Pages | : 54 |
Release | : 2010-10 |
Genre | : Language Arts & Disciplines |
ISBN | : 1437935184 |
This paper investigates whether a particular aspect of borrowers' financial literacy ¿ their numerical ability ¿ may have played a role in the subprime mortgage delinquency. The authors measure several aspects of financial literacy and cognitive ability in a survey of subprime mortgage borrowers who took out mortgages in 2006 or 2007 and match these measures to objective data on mortgage characteristics and repayment performance. They find a large and statistically significant negative correlation between numerical ability and various measures of delinquency and default. These results raise the possibility that limitations in certain aspects of financial literacy played an important role in the subprime mortgage crisis. Charts and tables.
Author | : Kristopher S. Gerardi |
Publisher | : |
Total Pages | : 53 |
Release | : 2010 |
Genre | : Financial literacy |
ISBN | : |
Author | : Kyoung Tae Kim |
Publisher | : |
Total Pages | : 36 |
Release | : 2019 |
Genre | : |
ISBN | : |
This study investigated the effect of objective and subjective financial literacy on mortgage payment delinquency using the 2015 National Financial Capability Study dataset. A hierarchical model showed a substantial negative effect of objective literacy on delinquency, but subjective literacy did not have a significant effect. The predicted likelihood of delinquency at the 10th percentile of objective literacy was over three times as high as the likelihood at the 90th percentile. In a model with combinations of high or low objective and subjective financial literacy, those who were overconfident had a delinquency likelihood three times as high as those who had high objective and subjective literacy. Subjective literacy had substantial effects on delinquency both for high and for low objective literacy levels. In financial education, attention should be focused not only on objective learning, but also making sure consumers are aware of the limitations of their understanding.
Author | : Richard K. Green |
Publisher | : Academic Press |
Total Pages | : 249 |
Release | : 2013-11-21 |
Genre | : Business & Economics |
ISBN | : 0124045936 |
In Introduction to Mortgages & Mortgage Backed Securities, author Richard Green combines current practices in real estate capital markets with financial theory so readers can make intelligent business decisions. After a behavioral economics chapter on the nature of real estate decisions, he explores mortgage products, processes, derivatives, and international practices. By focusing on debt, his book presents a different view of the mortgage market than is commonly available, and his primer on fixed-income tools and concepts ensures that readers understand the rich content he covers. Including commercial and residential real estate, this book explains how the markets work, why they collapsed in 2008, and what countries are doing to protect themselves from future bubbles. Green's expertise illuminates both the fundamentals of mortgage analysis and the international paradigms of products, models, and regulatory environments. - Written for buyers of real estate, not mortgage lenders - Balances theory with increasingly complex practices of commercial and residential mortgage lending - Emphasizes international practices, changes caused by the 2008-11 financial crisis, and the behavioral aspects of mortgage decision making
Author | : Douglas J. Lamdin |
Publisher | : Springer Science & Business Media |
Total Pages | : 341 |
Release | : 2011-11-23 |
Genre | : Psychology |
ISBN | : 1461404754 |
There has been an increasing recognition that financial knowledge (i.e., literacy) is lacking across the population. Moreover, there is recognition that this lack of knowledge poses real problems as credit, mortgages, health insurance, retirement benefits, and savings and investment decisions become increasingly complex. Financial Decisions Across the Lifespan brings together the work of scholars from various disciplines (family and consumer sciences, economics, law, finance, sociology, and public policy) to provide a broad range of perspectives on financial knowledge, financial decisions, and policies. For consistency across the volume each chapter follows a similar format: (1) what individuals know or need to know (2) how what they know or need to know affects financial decisions and outcomes (3) ways in which policies or programs or financial innovations can enhance their knowledge, or decisions, or outcomes. Contributors will provide both new and existing research to create a valuable picture of the state of financial literacy and how it can be improved.