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

Do Lenders Make Less-Informed Investments in High-Growth Housing Markets?
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Volume/Issue: Volume 2021 Issue 151
Publication date: May 2021
ISBN: 9781513573380
$18.00
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Topics covered in this book

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Economics- Macroeconomics , Economics / General , International - Economics , nonlocal lender , nonlocal mortgage lender , return volatility , high-growth market , lender control , Mortgages , Loans , Housing prices

Summary

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.