Do Lenders Make Less-Informed Investments in High-Growth Housing Markets?

Sophia Chen, Lev Ratnovski and Yangfan Sun

No 2021/151, IMF Working Papers from International Monetary Fund

Abstract: Nonlocal mortgage lenders with greater exposure to high-growth housing markets accept fewer loan applications in these markets and experience greater stock return volatility. When these lenders expand to high-growth markets, they also ration credit to a significantly greater degree than when they ex-pand to other markets. Mean-variance analyses show that nonlocal lenders’ exposure to high-growth markets is associated with more risk, more efficiency, and more return on mortgage portfolios. Overall, these results imply that expansion to high-growth markets leads to a decline in screening and riskier investment by nonlocal lenders, which may reflect a risk–return tradeoff in their portfolio strategy.

Keywords: nonlocal lender; nonlocal mortgage lender; return volatility; high-growth market; lender control; Mortgages; Loans; Housing prices (search for similar items in EconPapers)
Pages: 53
Date: 2021-05-27
New Economics Papers: this item is included in nep-ure
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