Effects of Monitoring on Mortgage Delinquency: Evidence From a Randomized Field Study

Abstract

In the wake of the housing crisis in 2008, U.S. policymakers have developed a range of policy proposals to address the risk of mortgage borrowers going into payment default. Some of these proposed regulations would effectively eliminate certain loans with riskier borrower characteristics from the market. Such prescriptive approaches fail to recognize alternatives that permit riskier loans to be made, but require postorigination practices designed to offset elevated default risk by improving the capability of individual borrowers to make timely payments. This study provides evidence of one such approach. Through a randomized field experiment, we test the impact of goal setting and external monitoring on mortgage delinquency. First-time homebuyers who completed a financial planning module and received quarterly contact from a financial coach are less likely to become delinquent or default on their mortgages. These results suggest that relatively low cost procedures embedded into loan servicing may increase adherence to timely repayments, thereby reducing the probability of delinquency while still permitting riskier borrowers to participate in credit markets. C 2014 by the Association for Public Policy Analysis and Management.

Behavioral Public Administration ad fontes: A Synthesis of Research on Bounded Rationality, Cognitive Biases, and Nudging in Public Organizations

“…Our analysis also unveiled studies that not only deal with cognitive biases in behaviors and judgments but also incorporate key tenets of nudging theory. These studies cover a variety of public decision domains, including improving attitudes toward government trustworthiness (Grimmelikhuijsen and Meijer 2012), increasing the collection of delinquent fines (Haynes et al 2013), boosting organ donations (Moseley and Stoker 2015), reducing the likelihood that home buyers become delinquent or default on their mortgages (Moulton et al 2015), and encouraging the adoption of desired health behaviors (Vlaev et al 2016).…”

Credit Counseling and Consumer Credit Trajectories

“…Some credit counseling agencies follow‐up with consumers at set intervals postcounseling to check on their progress toward their financial goals (Wang )—a form of financial coaching (Collins and O'Rourke ). There is an evolving body of literature that finds that financial coaching leads to improved consumer behaviors, including reduced debt levels and more timely debt payments (Collins ; Collins and O'Rourke ; Moulton et al ; Theodos et al ).…”

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