Do Lenders Make Less-Informed Investments in High-Growth Housing Markets?

Download or read book Do Lenders Make Less-Informed Investments in High-Growth Housing Markets? written by Sophia Chen and published by International Monetary Fund. This book was released on 2021-05-27 with total page 53 pages. Available in PDF, EPUB and Kindle. Book excerpt: Nonlocal mortgage lenders with greater exposure to high-growth housing markets accept fewer loan applications in these markets and experience greater stock return volatility. When these lenders expand to high-growth markets, they also ration credit to a significantly greater degree than when they ex-pand to other markets. Mean-variance analyses show that nonlocal lenders’ exposure to high-growth markets is associated with more risk, more efficiency, and more return on mortgage portfolios. Overall, these results imply that expansion to high-growth markets leads to a decline in screening and riskier investment by nonlocal lenders, which may reflect a risk–return tradeoff in their portfolio strategy.