Did Local Lenders Forecast the Bust? Evidence from the Real Estate Market
Kristle Romero Cortés
Federal Reserve Banks - Federal Reserve Bank of Cleveland
25th Australasian Finance and Banking Conference 2012
This paper shows that mortgage lenders with a physical presence near the property being financed have better information about home-price fundamentals than non-local lenders. Within lender, loan origination and retention decrease when the lender has a branch and the area experiences high home price appreciation. Across markets, local loans decrease from 2002-06 as home prices rise. Where local loans were made, home prices fell less from 2006-09. A standard deviation increase in local loans is associated with 5 fewer foreclosures per one thousand homes. The results for housing prices and foreclosures are even stronger when lenders retain the loans.
Number of Pages in PDF File: 59
Keywords: Local Share, House price growth
JEL Classification: G21
Date posted: December 2, 2011 ; Last revised: March 16, 2015
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