Economic Consequences of Transparency Regulation: Evidence from Bank Mortgage Lending

53 Pages Posted: 18 Feb 2022 Last revised: 9 Mar 2022

See all articles by Allison Nicoletti

Allison Nicoletti

University of Pennsylvania - Accounting Department

Christina Zhu

University of Pennsylvania - The Wharton School

Date Written: February 11, 2022

Abstract

We examine the economic consequences of a rule designed to improve consumers' understanding of mortgage information. The 2015 TILA-RESPA Integrated Disclosures (TRID) rule simplifies the disclosures provided to consumers, reducing their information processing costs and increasing lenders' compliance-related frictions. We posit that TRID-affected mortgages become less attractive to lenders as an investment opportunity. Our main results document that mortgage applications affected by TRID are less likely to be approved following the rule's effective date. We document evidence consistent with both a decrease in consumers' information costs and an increase in compliance-related frictions faced by lenders, providing insight into the potential channels through which this reduction in mortgage credit operates. We also find that banks partially compensate for reduced mortgage lending by increasing small business lending. Additional analyses suggest positive consequences for some consumers and negative consequences for others. Our study provides a better understanding of the broader economic consequences of transparency regulation for both the regulated firms and consumers, and provides a complementary perspective to the literature examining bank-level transparency in lending markets.

Keywords: information processing costs, consumer disclosures, mortgage lending, banks, transparency regulation

JEL Classification: D18, D83, G21, G28

Suggested Citation

Nicoletti, Allison and Zhu, Christina, Economic Consequences of Transparency Regulation: Evidence from Bank Mortgage Lending (February 11, 2022). Jacobs Levy Equity Management Center for Quantitative Financial Research Paper, Available at SSRN: https://ssrn.com/abstract=4032850 or http://dx.doi.org/10.2139/ssrn.4032850

Allison Nicoletti

University of Pennsylvania - Accounting Department ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

Christina Zhu (Contact Author)

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

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