The Industry Expertise Channel of Mortgage Lending

61 Pages Posted: 14 Apr 2021 Last revised: 6 Sep 2023

See all articles by Yongqiang Chu

Yongqiang Chu

Belk College of Business, UNC Charlotte

Zhanbing Xiao

Harvard University

Yuxiang Zheng

University of Akron - The George W. Daverio School of Accountancy

Date Written: March 1, 2021

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.

Suggested Citation

Chu, Yongqiang and Xiao, Zhanbing and Zheng, Yuxiang, The Industry Expertise Channel of Mortgage Lending (March 1, 2021). Available at SSRN: https://ssrn.com/abstract=3792629 or http://dx.doi.org/10.2139/ssrn.3792629

Yongqiang Chu

Belk College of Business, UNC Charlotte ( email )

9201 University City Boulevard
Charlotte, NC 28223
United States
7046877695 (Phone)

Zhanbing Xiao (Contact Author)

Harvard University ( email )

Cambridge, MA
United States

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

Yuxiang Zheng

University of Akron - The George W. Daverio School of Accountancy ( email )

United States

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