Did Local Lenders Forecast the Bust? Evidence from the Real Estate Market
59 Pages Posted: 2 Dec 2011 Last revised: 16 Mar 2015
Date Written: February 2015
This paper shows that mortgage lenders with a physical presence near the property being financed have better information about home-price fundamentals than non-local lenders. Within lender, loan origination and retention decrease when the lender has a branch and the area experiences high home price appreciation. Across markets, local loans decrease from 2002-06 as home prices rise. Where local loans were made, home prices fell less from 2006-09. A standard deviation increase in local loans is associated with 5 fewer foreclosures per one thousand homes. The results for housing prices and foreclosures are even stronger when lenders retain the loans.
Keywords: Local Share, House price growth
JEL Classification: G21
Suggested Citation: Suggested Citation