Financial Literacy And Subprime Mortgage Delinquency: Evidence From A Survey Matched To Administrative Data

Free registration required

Executive Summary

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. The authors 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. They find a large and statistically significant negative correlation between numerical ability and various measures of delinquency and default. Foreclosures starts are approximately two-thirds lower in the group with the highest measured level of numerical ability compared with the group with the lowest measured level.

  • Format: PDF
  • Size: 361.9 KB