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Did Local Lenders Forecast the Bust? Evidence from the Real Estate Market

59 Pages Posted: 2 Dec 2011 Last revised: 16 Mar 2015

Kristle Romero Cortés

UNSW Australia Business School, School of Banking and Finance

Date Written: February 2015

Abstract

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.

Keywords: Local Share, House price growth

JEL Classification: G21

Suggested Citation

Cortés, Kristle Romero, Did Local Lenders Forecast the Bust? Evidence from the Real Estate Market (February 2015). 25th Australasian Finance and Banking Conference 2012. Available at SSRN: https://ssrn.com/abstract=1967179 or http://dx.doi.org/10.2139/ssrn.1967179

Kristle Romero Cortés (Contact Author)

UNSW Australia Business School, School of Banking and Finance ( email )

Sydney, NSW 2052
Australia

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