Learning to Cope: Voluntary Financial Education Programs and the Housing Crisis

Mortgage counseling is regarded as an integral tool in ensuring appropriate choices by prospective home buyers. We use micro-level data from an urban voluntary counseling program aimed at disadvantaged households to assess its effectiveness. We find substantially lower expost delinquency rates among program graduates. This finding is robust to an array of controls and several ways of modeling the probability of selection into counseling treatment. We attribute improved performance to the type of mortgage contract extended to the graduates, to the budgeting and credit management skills taught in the program, and to active post-purchase counseling that seeks to cure delinquency at early stages. The effects appear strongest among the least creditworthy households, suggesting an important role for long-term preparation for homeownership.

Agarwal, Sumit and Amromin, Gene and Ben-David, Itzhak and Chomsisengphet, Souphala and Evanoff, Douglas D., Learning to Cope: Voluntary Financial Education Programs and Loan Performance During a Housing Crisis (December 28, 2009). Charles A. Dice Center Working Paper No. 2009-23 , AFA 2010 Atlanta Meetings Paper, Available at SSRN: https://ssrn.com/abstract=1529060