Banks vs. Credit Unions: An Event History Analysis of Mortgage Payoffs

• In Event: 30620 - Section on Inequality, Poverty, and Mobility Roundtables
  In Refereed Roundtable (60 minute): Table 9: Socioeconomic Stability and Vulnerability

Abstract

Despite the expanded access and availability of financial services in the US, many consumers are faced with steep fees and high interest rates that make the services unaffordable. In many cases, credit and loans that are intended to alleviate short-term economic hardships end up increasing one’s debt burden. Financial services inequalities exacerbate overall wealth inequality. Additionally, rising inflation coupled with the current administration’s contempt for organized labor and welfare state provisions puts more pressures on families to make ends meet. Financial services are currently designed to cater to the wealthy and to mitigate “risks” associated with less credit-worthy customers. In order to investigate alternatives to large commercial banks and expensive alternative financial institutions, this research compares time to payoff mortgages between loans originated by banks and by credit unions. Using event history analysis on a subsample of Equifax credit data, preliminary results show that those with credit union mortgages are more likely to pay off their mortgages faster. Future work for the full paper will continue to test the robustness of these findings and will also include zip code-level data to help account for the differences in home prices geographically. Credit unions are not-for-profit cooperative organizations that offer many of the same products and services as banks, and they already have a national infrastructure that could support more customers. The findings from this research can speak to one potential solution for financial services inequality.

Author

• Katherine Copas, Northwestern University