Did local lenders forecast the bust? Evidence from the real estate market
AbstractThis paper shows that mortgage lenders with a physical branch near the property being financed have better information about home-price fundamentals than nonlocal lenders. During the real estate run-up from 2002-06, home price growth negatively correlates with the share of loans made by local lenders, namely lenders with a branch in the respective county. Moreover, home prices fell less from 2006-09 in areas where more of the loans were made by local lenders. California foreclosure rates during the crisis are negatively correlated with local lending during the run-up. A 1 standard deviation increase in local loans is associated with 5 fewer foreclosures for every 1,000 houses. When local lenders retain loans for their portfolio rather than securitizing, the results for both home price growth and foreclosures are even stronger.
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Bibliographic InfoPaper provided by Federal Reserve Bank of Cleveland in its series Working Paper with number 1226.
Date of creation: 2012
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-12-15 (All new papers)
- NEP-FOR-2012-12-15 (Forecasting)
- NEP-URE-2012-12-15 (Urban & Real Estate Economics)
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Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- US local lenders knew about the housing bubble
by Economic Logician in Economic Logic on 2013-04-30 13:57:00
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