Competing for Deal Flow in Mortgage Markets

55 Pages Posted: 8 Sep 2017 Last revised: 7 Jun 2018

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: May 8, 2018

Abstract

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 mortgage acceptance models to generate local financing shocks, we link this instability to strong positive and convex feedback effects in lending: future applicants are especially attracted to the current fastest growing lenders. Local mortgage markets resemble tournaments; the quickest-growing (not the largest) competitors divert applications and originations from other lenders. Facing a quickly-growing competitor, banks charge higher interest rates, partially due to the increased risk of their loans, and experience worse mortgage performance.

Suggested Citation

Aiello, Darren and Garmaise, Mark J. and Natividad, Gabriel, Competing for Deal Flow in Mortgage Markets (May 8, 2018). Available at SSRN: https://ssrn.com/abstract=3032669 or http://dx.doi.org/10.2139/ssrn.3032669

Darren Aiello (Contact Author)

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

Los Angeles, CA
United States
8054054212 (Phone)

Mark J. 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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