Competing for Deal Flow in Local Mortgage Markets
69 Pages Posted: 8 Sep 2017 Last revised: 14 Sep 2022
Date Written: July 28, 2022
The U.S. mortgage market exhibits competitive instability in which some lenders emerge rapidly from the fringe to substantial market shares. Using inferred discontinuities in application acceptance models to generate local lending shocks, we analyze the impact on a lender of a surge in originations by its competitors. We show that the quickest-growing (not the largest) competitors divert applications and originations from other lenders. Facing a quickly-growing competitor, lenders charge higher interest rates, partially due to the increased risk of their loans. Loan performance suffers for other lenders as the quickest-growing competitor's originations increase.
Keywords: Mortgage competition, lending shocks
JEL Classification: G21; D40
Suggested Citation: Suggested Citation