Information Externalities, Neighborhood Characteristics and Home Mortgage Pricing and Underwriting

31 Pages Posted: 4 Aug 2015

See all articles by Ioan Voicu

Ioan Voicu

Office of the Comptroller of the Currency (OCC)

Irina Paley

Government of the United States of America - Office of the Comptroller of the Currency (OCC)

Andres E. Lopez

Office of the Comptroller of the Currency; Promontory Financial Group

Irene Fang

Government of the United States of America - Office of the Comptroller of the Currency (OCC); Citigroup, Inc.

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Date Written: Fall 2015

Abstract

Theories of rational redlining suggest thinness in housing markets should lead to greater uncertainty in house price appraisals, increasing mortgage denial rates or pricing. Empirical tests found support for this theory in mortgage underwriting using 1990s data. Using 2006 data and bank‐specific regression models, we revisit this topic in light of two developments leading to the recent mortgage bubble: the widespread securitization that allowed banks to shift loan risk to investors and the advent of risk‐based pricing. Consistent with expectations, we find that information externalities have become economically very small and have shifted from underwriting to pricing decisions.

Suggested Citation

Voicu, Ioan and Paley, Irina and Lopez, Andres E. and Fang, Irene, Information Externalities, Neighborhood Characteristics and Home Mortgage Pricing and Underwriting (Fall 2015). Real Estate Economics, Vol. 43, Issue 3, pp. 719-749, 2015. Available at SSRN: https://ssrn.com/abstract=2639429 or http://dx.doi.org/10.1111/1540-6229.12079

Ioan Voicu (Contact Author)

Office of the Comptroller of the Currency (OCC) ( email )

400 7th Street SW
Washington, DC 20219
United States

Irina Paley

Government of the United States of America - Office of the Comptroller of the Currency (OCC) ( email )

400 7th Street SW
Washington, DC 20219
United States

Andres E. Lopez

Office of the Comptroller of the Currency ( email )

250 E Street, SW
Washington, DC 20219
United States

Promontory Financial Group ( email )

1201 Pennsylvania Avenue, NW
Suite 617
Washington, DC 20004
United States

Irene Fang

Government of the United States of America - Office of the Comptroller of the Currency (OCC) ( email )

400 7th Street SW
Washington, DC 20219
United States

Citigroup, Inc. ( email )

399 Park Avenue
6th Floor
New York, NY 10043
United States

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