Added Aug 2, 2010
2 min
Joint Liability Lending and Credit Risk: Evidence from the Home Equity Market
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 the 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.
JEL Classification
G21, D12, D14
Suggested Citation
Agarwal, Sumit and Ambrose, Brent W. and Chomsisengphet, Souphala and Liu, Chunlin, Joint Liability Lending and Credit Risk: Evidence from the Home Equity Market (July 30, 2010). Available at SSRN: https://ssrn.com/abstract=1651306 or http://dx.doi.org/10.2139/ssrn.1651306
Partners
Ambrose, B., S. Chomsisengphet, and C. Liu
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