Originating Lender Characteristics and Mortgage Outcomes in Affordable Loan Programs
Previous research finds that borrowers who receive mortgages from banks (depository institutions) are less likely to become delinquent or default on their mortgages than borrowers who receive mortgages from non-bank mortgage companies (including third party originators). Questions arise about the extent to which such differences are due to banks' ability to select less risky borrowers (information effect), or due to bank regulatory structures that make them more cautious lenders (institution effect). Both effects have substantial, albeit very different policy implications critical to informing low income homeownership policies moving forward. Further, are such differences due to lender localness, rather than institutional structure (or both)? That is, are borrowers who receive loans from lenders who are more invested in their local communities more likely to sustain homeownership over time? Is this due targeting or selection of "less risky" borrowers, or something that the local lender does to prepare homebuyers for purchase (or both)? To address these questions, we employ data on Mortgage Revenue Bond programs in Indiana, Ohio and Florida, with the most detailed analysis of the Ohio MRB program.
A study on informational advantages that local banks supply high risk borrowers is forthcoming in the Journal of Money, Credit and Banking: