Advertising Expensive Mortgages

Using information on advertising and mortgages originated by subprime lenders, we study whether advertising helped consumers find cheaper mortgages. Lenders that advertise more within a region sell more expensive mortgages, measured as the excess rate of a mortgage after accounting for borrower, contract, and regional characteristics. These effects are stronger for mortgages sold to less sophisticated consumers. We exploit regional variation in mortgage advertising induced by the entry of Craigslist and other tests to demonstrate that these findings are not spurious. Analyzing advertising content reveals that initial/introductory rates are frequently advertised in a salient fashion, where reset rates are not.

Keywords: Advertising, Policy intervention, Mortgages, Foreclosures, Housing crisis

JEL Classification: E65, G18, G21, H3, L85

Suggested Citation: Suggested Citation

Gurun, Umit G. and Matvos, Gregor and Seru, Amit, Advertising Expensive Mortgages (September 1, 2016). Journal of Finance, Forthcoming, Fama-Miller Working Paper, Kreisman Working Papers Series in Housing Law and Policy No. 10, Available at SSRN: https://ssrn.com/abstract=2233380 or http://dx.doi.org/10.2139/ssrn.2233380