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Exploring the Design of Financial Counseling for Mortgage Borrowers in Default

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Abstract

This paper analyzes the effects of counseling provided to borrowers in mortgage default (n = 299). Borrowers receiving more hours of counseling perceive counseling more favorably than those receiving fewer hours of counseling. Using measures of marketing efforts to instrument counseling time confirms the positive effect of counseling duration on borrower ratings of counseling. Borrowers are more likely to attend additional counseling sessions after receiving face-to-face counseling as opposed to telephone counseling, although preference among modes can largely be explained by time in counseling. Each additional hour of counseling reduces the marginal probability of a borrower moving to a more severe stage of foreclosure. Counseling could be more successful if provided for longer durations regardless of the delivery mode.

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Notes

  1. Average inter item covariance: .667; Scale reliability coefficient: .8723 (Cronbach's alpha)

  2. Average inter item covariance: .103 Scale reliability coefficient: .8333 (Cronbach's alpha).

  3. Counseling time squared was also include in a variation of this specification to test for diminishing effects. The coefficient was not statistically significant.

  4. Using a two stage least squares model, counseling time is effectively modeled, resulting in a first stage f-test of 4.2, P < .0014; sessions resulted in an f-test of 3.6 and P < .0008

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Acknowledgments

Sharon Tennyson for helpful advice and direction, Bruce Gottschall for support and expertise, and Charlie Corrigan for data assembly. Thanks also to the NHS Chicago, Homeownership Preservation Foundation and the City of Chicago for cooperation in sharing these data.

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  1. Cornell University, 711 North Aurora Street, Ithaca, NY, 14850, USA

    J. Michael Collins

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  1. J. Michael Collins
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Correspondence to J. Michael Collins.

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Collins, J.M. Exploring the Design of Financial Counseling for Mortgage Borrowers in Default. J Fam Econ Iss 28, 207–226 (2007). https://doi.org/10.1007/s10834-007-9061-z

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