The Industry Expertise Channel of Mortgage Lending

Abstract

We show that banks use industry knowledge acquired through corporate lending in mortgage lending, a phenomenon we refer to as the “industry expertise channel." Specifically, we show that banks with specialization in particular industries increase mortgage lending in regions concentrated with these industries. The impact of industry expertise increases with information asymmetry and elevated borrower risk. Additionally, mortgages originated from this channel contain more soft information and perform better. The importance of the channel also increases after unexpected industry distress and the 2008 financial crisis, suggesting that the effects are likely causal. Our findings underscore how insights gleaned from the corporate loan market contribute to enhancing banks’ screening and monitoring capabilities within the mortgage market.

Keywords: Lending Specialization; Industry Expertise; Information Asymmetry; Income Risk; Mortgage Lending; Syndicated Loans.

JEL Classification: G21, G30, D82.