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Hidden Financial Costs of the Opioid Crisis: Evidence from Mortgage Originations

Author

Listed:
  • Shikong (Scott) Luo

    (The University of Oklahoma)

  • Alan Tidwell

    (University of Alabama)

Abstract

This study examines mortgage market implications of the opioid public health crisis in the United States. Employing data on over 4 million mortgage loan application records, we find lenders are less likely to approve loans from areas with relatively higher levels of opioid abuse significantly impeding borrowers’ access to financial markets. Consistent with risk channeling, originated mortgage loans are more likely to have lower loan-to-income ratios in areas with higher rates of opioid abuse. Heterogeneity among lender firms also affects the extent to which lenders incorporate concerns about risks induced by the opioid crisis into loan underwriting, with traditional lenders located in the county where the purchased residential property is located being most likely to base loan approval decisions on the perceived severity of the local opioid epidemic. The U.S. Drug Enforcement Administration’s tightening controls of hydrocodone products serves as a quasi-natural experiment and supports a causal interpretation suggesting opioid abuse is an additional risk factor that is likely to affect mortgage lending decisions on the extensive margin.

Suggested Citation

  • Shikong (Scott) Luo & Alan Tidwell, 2025. "Hidden Financial Costs of the Opioid Crisis: Evidence from Mortgage Originations," The Journal of Real Estate Finance and Economics, Springer, vol. 70(3), pages 583-607, April.
    • Handle: RePEc:kap:jrefec:v:70:y:2025:i:3:d:10.1007_s11146-023-09946-z
    DOI: 10.1007/s11146-023-09946-z
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