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How Does Financial Literacy Affect Mortgage Default
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Book Synopsis How Does Financial Literacy Affect Mortgage Default? by : Sumit Agarwal
Download or read book How Does Financial Literacy Affect Mortgage Default? written by Sumit Agarwal and published by . This book was released on 2017 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.
Book Synopsis Financial Literacy and Subprime Mortgage Delinquency by : Kristopher Gerardi
Download or read book Financial Literacy and Subprime Mortgage Delinquency written by Kristopher Gerardi and published by DIANE Publishing. This book was released on 2010-10 with total page 54 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.
Book Synopsis Financial Literacy and Subprime Mortgage Delinquency by : Kristopher Gerardi
Download or read book Financial Literacy and Subprime Mortgage Delinquency written by Kristopher Gerardi and published by . This book was released on 2014 with total page 54 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.
Book Synopsis Financial Literacy, Broker-Borrower Interaction, and Mortgage Default by : James Conklin
Download or read book Financial Literacy, Broker-Borrower Interaction, and Mortgage Default written by James Conklin and published by . This book was released on 2015 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.
Book Synopsis Financial Literacy and Student Loan Default by : Jennifer Suzanne Kempton Dudley
Download or read book Financial Literacy and Student Loan Default written by Jennifer Suzanne Kempton Dudley and published by . This book was released on 2018 with total page 62 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.
Book Synopsis Financial Literacy and Subprime Mortgage Delinquency by : Kristopher S. Gerardi
Download or read book Financial Literacy and Subprime Mortgage Delinquency written by Kristopher S. Gerardi and published by . This book was released on 2010 with total page 53 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Financial Literacy and Mortgage Credit by : Xudong An
Download or read book Financial Literacy and Mortgage Credit written by Xudong An and published by . This book was released on 2015 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt: We use a novel approach to calculate individual “financial literacy score” for a large set of California mortgage borrowers and then investigate the relation between financial literacy and mortgage outcomes. We find borrowers with low financial literacy are more likely to accept riskier mortgages and have mortgages with disadvantageous characteristics, ceteris paribus. In addition, they pay a higher rate, are less likely to take advantage of advantageous prepayment opportunities, and are more likely to default. Our estimates show that financial literacy is economically significant where mortgage outcomes are concerned. Our lower-bound estimate is that converting low literacy borrowers into high literacy borrowers would lead to $460 million in reduced mortgage payments annually in California due to reduced borrowing cost. Other reasonable scenarios yield savings exceeding $2 billion annually. Further, with improved financial literacy, borrowers would be 25 to 50 percent less likely to have the “toxic” short-term adjustable rate mortgages that contributed to the broader housing crisis. Our results argue for serious consideration of how best to improve financial literacy, as opposed to whether efforts should be made to improve financial literacy.
Book Synopsis The Effects of Financial Literacy Overconfidence on the Mortgage Delinquency of US Households by : Kyoung Tae Kim
Download or read book The Effects of Financial Literacy Overconfidence on the Mortgage Delinquency of US Households written by Kyoung Tae Kim and published by . This book was released on 2019 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.
Book Synopsis Financial Literacy and Mortgage Payment Delinquency? by : Tran Huynh
Download or read book Financial Literacy and Mortgage Payment Delinquency? written by Tran Huynh and published by . This book was released on 2023 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study investigates the causal effect of financial literacy on mortgage payment delinquency. Using an Instrumental-Variable (IV) approach, we find that increased financial literacy significantly reduces the probability of mortgage delinquency. The identified causal effect is robust to different specifications of the IV and cannot be explained by formal education, income, and many other individual characteristics. Our study also examines the heterogeneity of the impact across various demographic groups. We find that the effect of financial literacy on delinquency likelihood is negative and significantly different from zero for any age, gender, income, or education level. However, the magnitude of the effect decreases with age and is higher in states where the population's financial literacy is low, as compared with high-literate states.
Book Synopsis Financial Literacy by : Basil Donato
Download or read book Financial Literacy written by Basil Donato and published by . This book was released on 2013 with total page 9 pages. Available in PDF, EPUB and Kindle. Book excerpt: In the United States student loan debt has reached one trillion dollars. The increase in student loan debt correlates with an increase in the number of student loans in default. This study was conducted to determine the financial literacy of college students enrolled in a pre-professional setting. The information obtained was analyzed to uncover trends in student loan debt and default rates regarding student loans and repayment. A convenience sample of Touro College's School of Health Sciences students were given a survey containing questions relating to demographics, and current habits such as level of education, spending and income. Subjects also answered loan repayment questions relating to expected monthly payment and time permitted to repay loan in full. Once the risk factors are known a further more efficient form of education can be mandated to students designed to teach the characteristics of loans, explain the ramifications of student loan default.
Book Synopsis Mortgage Defaults by : Juan Carlos Hatchondo
Download or read book Mortgage Defaults written by Juan Carlos Hatchondo and published by International Monetary Fund. This book was released on 2012-01-01 with total page 33 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper incorporates house price risk and mortgages into a standard incomplete market (SIM) model. The model is calibrated to match U.S. data and accounts for non-targeted features of the data such as the distribution of down payments, the life-cycle profile of home ownership, and the mortgage default rate. The average coefficients that measure the agents' ability to self-insure against income shocks are similar to those of a SIM model without housing but housing increases the values of these coefficients for younger agents. The response of consumption to house price shocks is minimal. The introduction of minimum down payments or income garnishment benefits a majority of the population.
Book Synopsis Essays on Mortgage Broker, Borrower, and Lender Behavior in the Subprime Mortgage Market by : James Conklin
Download or read book Essays on Mortgage Broker, Borrower, and Lender Behavior in the Subprime Mortgage Market written by James Conklin and published by . This book was released on 2014 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation presents three essays on the behavior of mortgage brokers, borrowers, and lenders in the subprime mortgage market. In the first essay, I examine the relationship between the type of 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. This relation holds only for loans that have certain 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. Additionally, a face-to-face meeting between the mortgage broker and the borrower is associated with lower default rates on cash-out loans, which brokers often originated as "credit-repair" loans. Moreover, the relation between default and broker-borrower interaction is significant only for certain loan products (ARMs, low-doc) that have been linked to low levels of financial literacy. Taken together, these results suggest that face-to-face interaction between the mortgage broker and borrower may reduce problems associated with financial illiteracy.In the second essay I explore differences in low-doc mortgages across employment types. Evidence suggests that stated income documentation mortgages, or "liars' loans," are used to falsify income so that borrowers can obtain mortgages that would be deemed unaffordable by traditional underwriting standards. By examining differences in stated income loans across employment types (e.g. self-employed versus W2 borrowers), I show that not all lies are created equal. My results demonstrate that high default rates for stated income loans are driven by W2 borrowers. For self-employed borrowers, default is not significantly related to the level of income documentation. Also, I find that income falsification is problematic only on stated income loans to W2 borrowers. In addition, I provide evidence that selection effects before the loan funds, at both the lender and borrower level, exist on stated income loans. Taken together, the results indicate that important differences exist between stated income loans to W2 borrowers versus low-doc loans to self-employed borrowers.The third essay investigates real earnings management in the context of the residential mortgage market. Specifically, I try to determine if the lender originates lower quality loans to meet earnings benchmarks. My results are consistent with the lender lowering origination standards to manipulate earnings. Depending on the specification, loans originated in the final month of income constrained quarters are 27% - 34% more likely to default, ceteris paribus. Furthermore, expected default rates, based on ex ante risk characteristics observable at origination, are higher in the final month of income constrained quarters. In addition, I try to detect how the lender manipulates its activities in the final month of quarters where it meets or just beats earnings expectations. The results indicate the lender is less likely to reject loan applications when it is in jeopardy of meeting earnings expectations.
Book Synopsis Strategic Mortgage Default System And Knowledge by : Elisabeth Dicker
Download or read book Strategic Mortgage Default System And Knowledge written by Elisabeth Dicker and published by . This book was released on 2021-08-10 with total page 80 pages. Available in PDF, EPUB and Kindle. Book excerpt: A mortgage default arises when a borrower fails to make monthly payments to their principal balance or interest on a home loan. Yet, defaulting can also occur with credit card and student loans In this book, you will discover: - What "strategic mortgage default" is and why banks and lenders are often powerless to stop the situation... - The scare tactics banks use to coerce... or even threaten homeowners into keeping up with their monthly mortgage payments (I show you a way to get around these almost devious scare tactics.) - The #1 tool banks and lenders like to use to discourage strategic mortgage default... and why it is so painfully effective for MOST people - The truth about strategic mortgage default... and why it is NOT as unethical as the banks and government makes it out to be (What you read here may shock you!) - Why it is NOT in the bank's best interests that you default on your mortgage... and what you can do to take advantage of this fact - And so much more! Get your copy today!
Book Synopsis Consumer Knowledge and Financial Decisions by : Douglas J. Lamdin
Download or read book Consumer Knowledge and Financial Decisions written by Douglas J. Lamdin and published by Springer Science & Business Media. This book was released on 2011-11-23 with total page 341 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.
Book Synopsis Introduction to Mortgages and Mortgage Backed Securities by : Richard K. Green
Download or read book Introduction to Mortgages and Mortgage Backed Securities written by Richard K. Green and published by Academic Press. This book was released on 2013-11-21 with total page 249 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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
Book Synopsis Can't Pay, Won't Pay by : Collective Debt
Download or read book Can't Pay, Won't Pay written by Collective Debt and published by Haymarket Books. This book was released on 2020-06-23 with total page 98 pages. Available in PDF, EPUB and Kindle. Book excerpt: Debtors have been mocked, scolded and lied to for decades. We have been told that it is perfectly normal to go into debt to get medical care, to go to school, or even to pay for our own incarceration. We’ve been told there is no way to change an economy that pushes the majority of people into debt while a small minority hoard wealth and power. The coronavirus pandemic has revealed that mass indebtedness and extreme inequality are a political choice. In the early days of the crisis, elected officials drew up plans to spend trillions of dollars. The only question was: where would the money go and who would benefit from the bailout? The truth is that there has never been a lack of money for things like housing, education and health care. Millions of people never needed to be forced into debt for those things in the first place. Armed with this knowledge, a militant debtors movement has the potential to rewrite the contract and assure that no one has to mortgage their future to survive. Debtors of the World Must Unite. As isolated individuals, debtors have little influence. But as a bloc, we can leverage our debts and devise new tactics to challenge the corporate creditor class and help win reparative, universal public goods. Individually, our debts overwhelm us. But together, our debts can make us powerful.
Book Synopsis Evidence and Innovation in Housing Law and Policy by : Lee Anne Fennell
Download or read book Evidence and Innovation in Housing Law and Policy written by Lee Anne Fennell and published by Cambridge University Press. This book was released on 2017-08-29 with total page 357 pages. Available in PDF, EPUB and Kindle. Book excerpt: This interdisciplinary volume illuminates housing's impact on both wealth and community, and examines legal and policy responses to current challenges. Also available as Open Access.
