Beyond the Transaction: Depository Institutions and Reduced Mortgage Default for Low-Income Homebuyers

44 Pages Posted: 2 Aug 2011 Last revised: 9 Jan 2012

See all articles by O. Emre Ergungor

O. Emre Ergungor

affiliation not provided to SSRN

Stephanie Moulton

Ohio State University- John Glenn College of Public Affairs

Date Written: August 2, 2011

Abstract

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 are significantly less likely to become delinquent or default than other bank or non-bank borrowers, suggesting an unobserved information effect. These effects are most pronounced for higher risk borrowers, who likely benefit more from informational advantages of local banks. These findings support previous research on information-driven lending, and provide additional explanation for observed differences in mortgage loan performance between bank and non-bank lenders.

Keywords: Relationship lending, Mortgage Revenue Bond program, mortgage performance, soft information

JEL Classification: G21

Suggested Citation

Ergungor, Ozgur Emre and Moulton, Stephanie, Beyond the Transaction: Depository Institutions and Reduced Mortgage Default for Low-Income Homebuyers (August 2, 2011). FRB of Cleveland Working Paper No. 11-15. Available at SSRN: https://ssrn.com/abstract=1903868 or http://dx.doi.org/10.2139/ssrn.1903868

Ozgur Emre Ergungor (Contact Author)

affiliation not provided to SSRN

Stephanie Moulton

Ohio State University- John Glenn College of Public Affairs ( email )

110 Page Hall
1810 College Road
Columbus, OH 43210
United States

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