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Asymmetric Information About Collateral Values

64 Pages Posted: 8 Mar 2012 Last revised: 11 Nov 2014

Johannes Stroebel

New York University (NYU); National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Date Written: 2013

Abstract

I empirically analyze credit market outcomes when competing lenders are differentially informed about the expected return from making a loan. I study the residential mortgage market where property developers often cooperate with vertically integrated mortgage lenders to offer financing to buyers of new homes. I show that these integrated lenders have superior information about the construction quality of individual homes and exploit this information to lend against higher-quality collateral, decreasing foreclosures by up to 40%. To compensate for this adverse selection on collateral values, non-integrated lenders charge higher interest rates when competing against a better-informed integrated lender.

Keywords: Asymmetric Information, Mortgage Lending, Collateral, Banking Competition

Suggested Citation

Stroebel, Johannes, Asymmetric Information About Collateral Values (2013). Available at SSRN: https://ssrn.com/abstract=2018095 or http://dx.doi.org/10.2139/ssrn.2018095

Johannes Stroebel (Contact Author)

New York University (NYU) ( email )

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National Bureau of Economic Research (NBER) ( email )

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Centre for Economic Policy Research (CEPR) ( email )

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