Beyond the Transaction: Depository Institutions and Reduced Mortgage Default for Low-Income Homebuyers
44 Pages Posted: 2 Aug 2011 Last revised: 9 Jan 2012
Date Written: August 2, 2011
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: Suggested Citation