Borrow

Abstract: The widespread use of credit scoring in the underwriting and pricing of mortgage and Consumer Credit has raised concerns that the use of these scores may unfairly disadvantage minority populations. A specific concern has been that the independent variables that comprise these models may have a disparate impact on these demographic groups. By "disparate impact" we mean that a variable's predictive power might arise not from its ability to predict future performance within any demographic group, but rather from acting as a surrogate for group membership.

Abstract: While a substantial literature has examined the causes of mortgage foreclosure, there has been relatively little work on the consequences of foreclosure for the borrowers themselves. Using a large sample of anonymous credit bureau records, observed quarterly from 1999Q1 through 2010Q1, we examine the credit experiences of almost 350,000 borrowers before and after their mortgage foreclosure.

Doorways to Dreams Fund (D2D) is working to develop and test video games attractive to low-income and minority adults that will provide training in critical financial skills to improve financial decision-making. During the last year, D2D has conceived, developed and delivered the third and fourth titles in its growing library of financial literacy casual video games: Farm Blitz and Bite Club. In Farm Blitz, players take on the role of a farmer who must harvest crops to generate earnings, manage debt, save money, and weather unexpected emergencies.

Abstract: The boom in the subprime mortgage market yielded many loans with high LTV ratios. From a large proprietary database on subprime mortgages, we find that choice of mortgage rate type is not linear in loan sizes. A fixed rate mortgage contract is a popular choice when loan size, measured by LTV ratio, is small. As LTV ratio increases, borrowers become more likely to choose adjustable rate mortgage contracts. However, when LTV reaches a certain level, borrowers start to switch back to fixed rate contracts. For these high LTV loans, fixed rate mortgages dominate borrowers' choices.

Merchant fees and reward programs generate an implicit monetary transfer to credit card users from non-card (or “cash”) users because merchants generally do not set differential prices for card users to recoup the costs of fees and rewards. On average, each cash-using household pays $149 to card-using households and each card-using household receives $1,133 from cash users every year. Because credit card spending and rewards are positively correlated with household income, the payment instrument transfer also induces a regressive transfer from low-income to high-income households in general.

The Community Development Department of the Federal Reserve Bank of San Francisco (FRBSF) commissioned this study to explore the feasibility of passing a financial education mandate in California. Specifically, we sought to understand the key barriers related to passing a mandate in California and to identify strategies to implement financial education in the current environment, despite the absence of a state mandate.

Financial literacy — the ability to use knowledge and skills to manage financial resources effectively for a lifetime of financial well-being — is becoming more and more important as individuals and families become increasingly responsible for their own long-term financial well-being. Financial and economic literacy education programs have been shown to increase financial literacy and capability. Many federal agencies and departments have long-standing financial education programs, and, in recent years, steps have been taken to increase coordination of such efforts.

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.

Abstract: This paper demonstrates the important role of job displacement in the household bankruptcy decision. I develop a dynamic, forward-looking model of unemployment and bankruptcy where persistent negative income shocks increase a household's likelihood of filing for bankruptcy both immediately and in the future. Consistent with the model's predictions, I find that households in the NLSY are 2.5 times more likely to file for bankruptcy in the year immediately following a job loss, at a rate of an additional 10 bankruptcies per 1000 job losses.

Abstract: This paper reviews the behavioral literature on inter-temporal choice and decision making under uncertainty and assesses the evidence on behavioral influences affecting consumers' credit decisions. The evidence reviewed suggests that consumers often do not consider all information available in the market nor deliberately evaluate each alternative. Consumers simplify, take shortcuts, and use heuristics, which may not always be optimal but nevertheless may be an economical means for achieving desired goals.