The Industry Expertise Channel of Mortgage Lending

Abstract

This paper documents an industry expertise channel that reduces the information asymmetry between banks and mortgage borrowers. This channel is a result of information spillover from a bank’s specialization in corporate lending to its mortgage lending. We find that banks indeed rely on the channel in mortgage lending, especially when information asymmetry or borrower risk is high. Further tests show that mortgages originated through the channel contain more soft information and have better performance. The findings suggest that information from the channel improves banks’ screening and monitoring efficiency in the mortgage market.

Keywords: Information Asymmetry, Industry Expertise, Syndicated Loans, Mortgages

JEL Classification: G21, G30, D82.