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

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

Research output: Contribution to journalArticlepeer-review

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.

Original languageEnglish (US)
Pages (from-to)47-66
Number of pages20
JournalJournal of Housing Economics
Volume32
DOIs
StatePublished - Jun 1 2016

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

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