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Joint liability lending and credit risk: Evidence from the home equity market

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  • Agarwal, Sumit
  • Ambrose, Brent W.
  • Chomsisengphet, Souphala
  • Liu, Chunlin

Abstract

Using a unique dataset of home equity credit contracts, we examine the benefits of joint liability lending. Our results show that the risk of default for joint borrowers with similar risk scores is significantly lower than the risk associated with single borrowers. However, when joint borrowers have divergent risk scores, the risk of default is higher than single borrowers. Our results indicate that the lower risk associated with joint liability is largely dependent upon the similarity of risk characteristics (profiles) of the joint borrowers. Our results suggest that joint liability lending per say does not reduce credit risk.

Suggested Citation

  • Agarwal, Sumit & Ambrose, Brent W. & Chomsisengphet, Souphala & Liu, Chunlin, 2016. "Joint liability lending and credit risk: Evidence from the home equity market," Journal of Housing Economics, Elsevier, vol. 32(C), pages 47-66.
    • Handle: RePEc:eee:jhouse:v:32:y:2016:i:c:p:47-66
    DOI: 10.1016/j.jhe.2016.04.006
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    References listed on IDEAS

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    Cited by:

    1. Gill, Balbinder Singh, 2023. "Health uninsurance premium and mortgage interest rates," International Review of Financial Analysis, Elsevier, vol. 87(C).

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    More about this item

    Keywords

    Consumer Credit; Mortgages; Micro-finance; Information asymmetry;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance

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