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The real consequences of bank mortgage lending standards

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  • Vojtech, Cindy M.
  • Kay, Benjamin S.
  • Driscoll, John C.

Abstract

We examine the real effects of changes in bank mortgage loan underwriting standards by combining responses to the Federal Reserve’s Senior Loan Officer Opinion Survey, application information from the Home Mortgage Disclosure Act, and local housing market measures over 1990 to 2013. Tightened standards are associated with a 1 percentage point increase in denial rates and a 5% fall in loan issuance, controlling for applicant pool changes, but no change for predominantly-securitizing banks. In areas with more exposure to banks that have tightened standards, mortgage delinquency rates, house prices, new home sales, and residential construction employment fall substantially.

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  • Vojtech, Cindy M. & Kay, Benjamin S. & Driscoll, John C., 2020. "The real consequences of bank mortgage lending standards," Journal of Financial Intermediation, Elsevier, vol. 44(C).
    • Handle: RePEc:eee:jfinin:v:44:y:2020:i:c:s1042957319300622
    DOI: 10.1016/j.jfi.2019.100846
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    3. Teh Tian Huey & Daniel Chin Shen Li, 2016. "Measuring bank risk-taking behaviour - The risk-taking channel of Monetary Policy in Malaysia," IFC Working Papers 16, Bank for International Settlements.
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    5. David S. Bieri, 2017. "Managing “Cataclysmic Money”: How Financial Regulation Matters for the Future of U.S. Housing Policy," Housing Policy Debate, Taylor & Francis Journals, vol. 27(3), pages 476-482, May.
    6. Jeffrey Pittman & Yuping Zhao, 2020. "Debt Covenant Restriction, Financial Misreporting, and Auditor Monitoring," Contemporary Accounting Research, John Wiley & Sons, vol. 37(4), pages 2145-2185, December.
    7. Pedro Gete & Michael Reher, 2018. "Mortgage Supply and Housing Rents," The Review of Financial Studies, Society for Financial Studies, vol. 31(12), pages 4884-4911.
    8. Ty Kreitman & Todd Kuethe & David B. Oppedahl & Francisco Scott, 2022. "The Supply and Demand of Agricultural Loans," Research Working Paper RWP 22-06, Federal Reserve Bank of Kansas City.
    9. Lai, Shaojie & Liu, Shiang & Wang, Qing Sophie, 2023. "Déjà Vu: CEO overconfidence and bank mortgage lending in the post-financial crisis period," Journal of Behavioral and Experimental Finance, Elsevier, vol. 39(C).
    10. Yongqiang Chu & Mingming Qiu, 2021. "Debt Incentives and Bank Risk‐Taking," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 49(3), pages 778-808, September.

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    More about this item

    Keywords

    Residential real estate; Denial rates; Credit availability;
    All these keywords.

    JEL classification:

    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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