Do Lenders Make Less-Informed Investments in High-Growth Housing Markets?
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Summary:
Nonlocal mortgage lenders with greater exposure to high-growth housing markets accept fewer loan applications in these markets and experience greater stock return volatility. When these lenders expand to high-growth markets, they also ration credit to a significantly greater degree than when they ex-pand to other markets. Mean-variance analyses show that nonlocal lenders’ exposure to high-growth markets is associated with more risk, more efficiency, and more return on mortgage portfolios. Overall, these results imply that expansion to high-growth markets leads to a decline in screening and riskier investment by nonlocal lenders, which may reflect a risk–return tradeoff in their portfolio strategy.
Series:
Working Paper No. 2021/151
Subject:
Financial institutions Housing prices Loans Mortgages Prices
Frequency:
regular
English
Publication Date:
May 27, 2021
ISBN/ISSN:
9781513573380/1018-5941
Stock No:
WPIEA2021151
Pages:
53
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