J. Michael Collins

Financial Education and Counseling — Still Holding Promise

This article reviews the evaluation literature on financial education and counseling for adults in order to synthesize implications for research and practice. Most evaluations report positive impacts, but the findings are often small when compared with valid comparison groups. Many evaluations use self-reported measures, measure outcomes over short time periods and cannot rule out selection bias due to nonrandomized designs, all of which may bias results. Although future research and practice in this field hold promise, more attention to theory-based evaluations and further investment in randomized field experiments may be fruitful.

The Impacts of Mandatory Financial Education: Evidence from a Randomized Field Study

Financial education is commonly assumed to affect knowledge and behavior, yet its impacts remain relatively untested. Very low-income families in a subsidized housing program were randomly assigned to a mandatory financial education program and tracked for 12 months. Financial education led to improvements in self-reported behaviors, but no measurable effects on savings or credit, except for participants in education expanding their use of credit, albeit with no evidence of problems in the study period. This study also illustrates the methodological issues that arise in social experiments with small samples, including non-compliance, attrition and self-report bias.

State Mandated Financial Education and the Credit Behavior of Young Adults

In the U.S., a number of states have mandated personal finance classes in public school curricula to address perceived deficiencies in financial decision-making competency. Despite the growth of financial and economic education provided in public schools, little is known about the effect of these programs on the credit behaviors of young adults. Using a panel of credit report data, we examine young adults in three states where personal financial education mandates were implemented in 2007: Georgia, Idaho, and Texas. We compare the credit scores and delinquency rates of young adults in each of these states pre- and post-implementation of the education to those of students in a synthetic control state and then bordering states without financial education. We find that young people who are in school after the implementation of a financial education requirement have higher relative credit scores and lower relative delinquency rates than those in control states.

Who receives a mortgage modification? Race and income differentials in loan workouts

Loan modifications offer one strategy to prevent mortgage foreclosures by lowering interest rates, extending loan terms and/or reducing principal balance owed. Yet modifications are largely at the discretion of loan servicers and not as systematically transparent as loan application approvals and denials. Who is offered a modification and what form of modification they receive could result in disparate impacts for low-income and minority communities. This paper uses data on 105,769 non-agency securitized subprime loans made in 2005 to examine the incidence of defaults and modifications among loans managed by one large trustee of securitized loans covering 94 loan servicers in California, Oregon and Washington. Data from Home Mortgage Disclosure Act (HMDA) data is used to assess borrower characteristics. The results suggest although loan modifications remain a rarely used option among the servicers in these data, there is no evidence that minority borrowers are less likely to receive a modification or less aggressive modification. These borrowers are more likely to be delinquent, but controlling for delinquencies we find no evidence of disparate impact. We also find that preliminary performance of loans post-modification is positive, particularly for minority borrowers. Generally modifications involve modest interest rate reductions and increasing loan balances.

Protecting Minority Homeowners: Race, Foreclosure Counseling and Mortgage Modifications

Millions of minority homeowners are at risk of losing their homes as a result of the housing crisis due to mortgage foreclosure and home repossession. One consumer-oriented policy response to this crisis is mortgage default counseling for borrowers. This study examines the rate at which minority borrowers seek default counseling and the resulting correlation between counseling and the probability that a borrower obtains a modification of his/her original mortgage contract terms. The results suggest that African Americans are more likely to be counseled, relative to Whites. However, Latinos or other non-White groups are no more or less likely to be counseled. The probability of loan modifications among counseled African Americans is also higher than other counseled borrowers. These results suggest that counseling policies and the public subsidy of default counseling may be one approach for promoting consumer financial well-being of these households, but also suggest counseling efforts might be better designed for other minority groups. These results also have implications for the application of counseling to other mortgage decisions, such as refinance.

Household Debt and Adult Depressive Symptoms

This study uses data from waves 1 (1987-1989) and 2 (1992-1994) of the National Survey of Families and Households in the United States and a series of standard ordinary least squares (OLS) regressions and OLS regressions with individual-specific fixed effects to estimate associations of particular types and levels of debt with adult depressive symptoms. Results suggest that household debt is positively associated with greater depressive symptoms. However, this association is driven by short-term (unsecured) debt; we find little evidence of associations with depressive symptoms for mid- or long-term debt. The link between short-term debt and depression is generally robust to alternative specifications of our models, including whether debt is defined in absolute or relative terms. Furthermore, these associations are particularly concentrated among 51 to 64 year old adults and those with a high school education or less. These findings suggest that short-term debt may have an adverse influence on psychological wellbeing, particularly for those who are less educated or are approaching retirement age.

Flu and Finances: Influenza Outbreaks and Loan Defaults in US Cities, 2004–2012

OBJECTIVES We examined the association between influenza outbreaks in 83 metropolitan areas and credit card and mortgage defaults, as measured in quarterly zip code-level credit data over the period of 2004 to 2012. METHODS We used ordinary least squares, fixed effects, and 2-stage least squares instrumental variables regression strategies to examine the relationship between influenza-related Google searches and 30-, 60-, and 90-day credit card and mortgage delinquency rates. RESULTS We found that a proxy for influenza outbreaks is associated with a small but statistically significant increase in credit card and mortgage default rates, net of other factors. These effects are largest for 90-day defaults, suggesting that influenza outbreaks have a disproportionate impact on vulnerable borrowers who are already behind on their payments. CONCLUSIONS Overall, it appears there is a relationship between exogenous health shocks (such as influenza) and credit default. The results suggest that consumer finances could benefit from policies that aim to reduce the financial shocks of illness, particularly for vulnerable borrowers.

The Effects of the Real Estate Bust on Renter Perceptions of Homeownership

After almost a decade of strong price appreciation, the housing market fell into a steep decline in 2007. By 2008, foreclosure filings on owner-occupied homes were surpassing record levels. Due to the housing downturn, fewer renters may aspire to own a home, which could have lasting implications for neighborhoods and household asset building. This study analyzes the impact of the housing downturn on renters’ intent to purchase a home, their perceptions of the risks and benefits of homeownership, and their interest in information and advice concerning homeownership. ; Based on a survey of 400 low- and moderate-income renters in the San Francisco Bay Area, most renters continue to aspire to homeownership, especially renters who are younger, who have higher incomes, and who speak English at home. In addition, lower-income and minority renters, as well as renters who reside in zip codes with greater exposure to foreclosures, have more negative perceptions of homeownership. Together, these findings indicate the housing downturn produced shifts in renters’ aspirations to own a home and the expected risks and benefits of owning a home that vary by residential location and demographic characteristics.

Mandatory Mediation and the Renegotiation of Mortgage Contracts

There is debate over why lenders are unwilling to modify more mortgages, ranging from structural to macroeconomic factors. This paper introduces the information problem that borrowers and lenders face and examines third party mediation as a mechanism to overcome this problem. Mediation offers both borrowers and lenders the opportunity to gain information about the potential for modifying the terms of the loan. Based on a difference in difference analysis of loans in four metropolitan statistical areas before and after at least one county imposed mediation and one did not, mediation policies appear to have positive effects on the rate of loan modifications. The use of mediation in states with judicial foreclosure proceedings may be an effective policy to increase the use of loan modifications and offers evidence that a lack of information may introduce additional barriers to modifications.

Home Foreclosure and Child Protective Services Involvement

OBJECTIVE: We estimated associations between experiencing a home foreclosure filing and experiencing a child protective services (CPS) investigation or substantiation. METHODS: We linked a large sample drawn from administrative data on foreclosure filings, CPS involvement, and participation in a host of other public programs for >60 000 Wisconsin households over a 4-year period from 2008 to 2011. Our empirical analyses used piecewise exponential survival models to estimate the risk of CPS involvement (investigation or substantiation) as a function of a home foreclosure filing and a set of individual and household characteristics. We fitted these models with and without the inclusion of propensity score weights. RESULTS: Households that experienced a foreclosure filing had a much higher probability of CPS involvement. This was true in the year before the filing as well as the year after the foreclosure filing. However, these associations were generally largest in the period before or shortly afterward. CONCLUSIONS: Experiencing a foreclosure filing is associated with increased CPS involvement. However, it is not clear that this association is driven by the foreclosure filing action itself. Rather, increased risk of CPS involvement is apparent during the process of moving toward the filing as well as the year or so after the filing, both of which are likely characterized by limited economic resources as well as by financial and other stress.