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Competing for Deal Flow in Mortgage Markets

54 Pages Posted: 8 Sep 2017  

Darren Aiello

University of California, Los Angeles (UCLA) - Anderson School of Management

Mark J. Garmaise

University of California, Los Angeles (UCLA) - Anderson School of Management

Gabriel Natividad

Universidad de Piura

Date Written: September 5, 2017

Abstract

We analyze competitive dynamics in the mortgage market. Using discontinuities in mortgage acceptance models to generate shocks to a bank's current local lending, we show that future applicants are attracted to growing lenders. Local mortgage markets resemble tournaments: a bank's originations are reduced by the lending of its quickest-growing competitors, not that of its overall competitors nor of its largest competitors. Moreover, future lending activity is convex in current originations. Tougher competition leads a bank to charge higher interest rates, partially due to the increased risk of its loans, and results in worse mortgage performance.

Suggested Citation

Aiello, Darren and Garmaise, Mark J. and Natividad, Gabriel, Competing for Deal Flow in Mortgage Markets (September 5, 2017). Available at SSRN: https://ssrn.com/abstract=3032669

Darren Aiello (Contact Author)

University of California, Los Angeles (UCLA) - Anderson School of Management ( email )

Los Angeles, CA
United States
8054054212 (Phone)

Mark Garmaise

University of California, Los Angeles (UCLA) - Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

Gabriel Natividad

Universidad de Piura ( email )

Calle Martir Olaya 162
Lima, Lima L18
Peru

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