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Beyond the Transaction: Banks and Mortgage Default of Low‐Income Homebuyers
Author(s) -
ERGUNGOR O. EMRE,
MOULTON STEPHANIE
Publication year - 2014
Publication title -
journal of money, credit and banking
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.763
H-Index - 108
eISSN - 1538-4616
pISSN - 0022-2879
DOI - 10.1111/jmcb.12164
Subject(s) - loan , business , non conforming loan , financial system , default , participation loan , database transaction , non performing loan , soft loan , mortgage underwriting , monetary economics , finance , mortgage insurance , economics , casualty insurance , computer science , programming language , insurance policy
We evaluate the effects of the lending institution and soft information on mortgage loan performance for low‐income homebuyers. We find that even after controlling for the propensity of a borrower to get a loan from a local bank based on observable characteristics, those who receive a loan from a local bank branch are significantly less likely to become delinquent or default than other bank or nonbank borrowers, consistent with an unobserved information effect. These effects are most pronounced for loans originated to borrowers with marginal credit, where soft information may have a stronger effect. These findings support previous research on information‐driven lending, and provide additional explanation for observed differences in mortgage loan performance between bank and nonbank lenders.