Added Jan 17, 2008
3 min
Do Forbearance Plans Help Mitigate Credit Card Losses
Abstract
In this paper, we examine how reinstated (i.e., re-aged) credit card accounts are likely to default again. Our sample data reveal that about 22% of the re-aged accounts default again, mostly in the first 24 months after reinstatement. We also find that a FICO score (public information) is a better predictor of a second default, while a payment behavioral score (private information) is a better predictor of a first default. Furthermore, the average FICO score of the 78% of the re-aged borrowers who did not default again rises about 20 points, an improvement in their relative risk profile overall. These findings suggest that the re-aging program provides a second chance for liquidity-constrained borrowers who would have otherwise defaulted on their debt.
JEL Classification
G21, C41
Suggested Citation
Agarwal, Sumit and Chomsisengphet, Souphala and Mielnicki, Lawrence, Do Forbearance Plans Help Mitigate Credit Card Losses?. Available at SSRN: https://ssrn.com/abstract=754825 or http://dx.doi.org/10.2139/ssrn.754825
Partners
Chomsisengphet, S., and L. Mielnicki
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