Screen More, Sell Later: Screening and Dynamic Signaling in the Mortgage Market

Manuel Adelino, Bin Wei and Feng Zhao ()
Additional contact information
Feng Zhao: https://jindal.utdallas.edu/faculty/feng-zhao

No 2025-3, FRB Atlanta Working Paper from Federal Reserve Bank of Atlanta

Abstract: In dynamic models of asset markets with asymmetric information and endogenous screening, the anticipation of signaling through delayed sales incentivizes originators to exert greater effort ex ante. A central prediction in those models is a positive relationship between screening effort and the delay of sale. We test this theoretical prediction using the mortgage market as a laboratory, with processing time serving as a measure of screening effort. In line with the theory, mortgage processing time and the delay of sale after origination are strongly positively related in the data. Both processing time and delay of sale are negatively related to conditional mortgage default, even though mortgages with higher ex ante credit risk are processed slower. This highlights the contrast between observable and unobservable risk and indicates that more screening effort leads to unobservably higher-quality loans that are also sold with a longer delay.

Keywords: processing time; screening; signaling; time to sale; securitization; mortgage loans; lending standards (search for similar items in EconPapers)
JEL-codes: G01 G21 G23 G32 R30 (search for similar items in EconPapers)
Pages: 68
Date: 2025-04-16
References: Add references at CitEc
Citations:

Published in 2025

Downloads: (external link)
https://www.atlantafed.org/-/media/documents/resea ... -mortgage-market.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedawp:99852

Ordering information: This working paper can be ordered from

DOI: 10.29338/wp2025-03

Access Statistics for this paper

More papers in FRB Atlanta Working Paper from Federal Reserve Bank of Atlanta Contact information at EDIRC.
Bibliographic data for series maintained by Rob Sarwark ().