Labor Mobility and Loan Origination

48 Pages Posted: 28 Jun 2019 Last revised: 15 Jul 2019

See all articles by Sumit Agarwal

Sumit Agarwal

National University of Singapore

Yupeng Lin

National University of Singapore

Yunqi Zhang

School of Finance, Nankai University; National University of Singapore

Zilong Zhang

City University of Hong Kong

Date Written: May 28, 2019

Abstract

This paper examines whether and to what extent loan officers’ labor mobility affects the origination and modification of U.S. residential mortgage loans. Our identification relies on a spatial regression discontinuity design (RDD) instituted by staggered adoption of the inevitable disclosure doctrine (IDD) in different states of the U.S. We find that mortgages that originated after the adoption of the IDD are 10% less likely to default, suggesting an improvement in ex ante screening. In addition, IDD adoption leads to a reduction in the loan-to-value (LTV) ratio and an increase in the interest rate unaccompanied by any decrease in the loan supply, suggesting an improvement in the loan origination efficiency. Further analyses reveal that discouragement of loan officers’ mobility increases ex post monitoring as the loan modification rate increases and the foreclosure rate decreases after IDD adoption. Such positive effects further translate into more stable housing prices. Overall, we find economically meaningful impacts of restricting loan officers’ job switching on the mortgage market.

Keywords: Mortgage Default, Modification, Labor Mobility, Inevitable Disclosure Doctrine

JEL Classification: D82, G21, J6

Suggested Citation

Agarwal, Sumit and Lin, Yupeng and Zhang, Yunqi and Zhang, Zilong, Labor Mobility and Loan Origination (May 28, 2019). Available at SSRN: https://ssrn.com/abstract=3411350 or http://dx.doi.org/10.2139/ssrn.3411350

Sumit Agarwal

National University of Singapore ( email )

15 Kent Ridge Drive
Singapore, 117592
Singapore
8118 9025 (Phone)

HOME PAGE: http://www.ushakrisna.com

Yupeng Lin

National University of Singapore ( email )

15 Kent ridge drive
Singapore
Singapore

HOME PAGE: http://sites.google.com/site/scottlinyupeng/

Yunqi Zhang

School of Finance, Nankai University ( email )

38 Tongyan Road, Jinnan District
Tianjin, Tianjin 300350
China

National University of Singapore ( email )

4 Architecture Drive
Singapore, 117566
Singapore

Zilong Zhang (Contact Author)

City University of Hong Kong ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong

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