Households rejecting loan offers from banks

Yiyi Bai; Liping Lu

doi:10.1016/j.jbankfin.2018.04.018

Households rejecting loan offers from banks

Yiyi Bai, Liping Lu^*

^*Corresponding author for this work

Research output: Contribution to Journal › Article › Academic › peer-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 language	English
Article number	105339
Pages (from-to)	1-15
Number of pages	15
Journal	Journal of Banking and Finance
Volume	119
Early online date	16 May 2018
DOIs	https://doi.org/10.1016/j.jbankfin.2018.04.018
Publication status	Published - Oct 2020

Keywords

Concentrated lender
Information advantage
Mortgage lending

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10.1016/j.jbankfin.2018.04.018

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title = "Households rejecting loan offers from banks",

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.",

keywords = "Concentrated lender, Information advantage, Mortgage lending",

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AB - 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.

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Households rejecting loan offers from banks

Abstract

Keywords

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