Competing for Deal Flow in Local Mortgage Markets

57 Pages Posted: 8 Sep 2017 Last revised: 20 Oct 2020

See all articles by Darren Aiello

Darren Aiello

Brigham Young University

Mark J. Garmaise

University of California, Los Angeles (UCLA) - Anderson School of Management

Gabriel Natividad

Universidad de Piura

Date Written: October 7, 2020

Abstract

The U.S. mortgage market exhibits competitive instability in which some lenders emerge rapidly from the fringe to substantial market shares. Using inferred discontinuities in application acceptance models to generate local lending shocks, we analyze the impact on a lender of a surge in originations by its competitors. We show that the quickest-growing (not the largest) competitors divert applications and originations from other lenders. Facing a quickly-growing competitor, banks charge higher interest rates, partially due to the increased risk of their loans. Loan performance suffers for other lenders as the quickest-growing competitor's originations increase.

JEL Classification: R31, G21, D40

Suggested Citation

Aiello, Darren and Garmaise, Mark J. and Natividad, Gabriel, Competing for Deal Flow in Local Mortgage Markets (October 7, 2020). Available at SSRN: https://ssrn.com/abstract=3032669 or http://dx.doi.org/10.2139/ssrn.3032669

Darren Aiello (Contact Author)

Brigham Young University ( email )

United States

HOME PAGE: http://darrenaiello.com

Mark J. Garmaise

University of California, Los Angeles (UCLA) - Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

Gabriel Natividad

Universidad de Piura ( email )

Calle Martir Olaya 162
Lima, Lima L18
Peru

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