Households rejecting loan offers from banks

Yiyi Bai, Liping Lu*

*Corresponding author for this work

Research output: Contribution to JournalArticleAcademicpeer-review

Abstract

This paper studies the mechanism of adverse selection in the credit market using a sample of mortgage applications that are approved by lenders but rejected by applicants. We find that a low-risk applicant is more likely to reject a loan offer, except when the offer is made by an informed lender. Using jumbo mortgage and loan acceptance rate data to proxy for the information advantage, we find that lenders with a lower likelihood of being rejected are indeed better informed than others.

Original languageEnglish
Article number105339
JournalJournal of Banking and Finance
Volume119
DOIs
Publication statusPublished - Oct 2020

Keywords

  • Concentrated lender
  • Information advantage
  • Mortgage lending

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