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 |
|---|---|
| Journal | Journal of Banking and Finance |
| DOIs | |
| Publication status | Accepted/In press - 1 Jan 2018 |
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Keywords
- Concentrated lender
- Information advantage
- Mortgage lending
Cite this
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Households rejecting loan offers from banks. / Bai, Yiyi; Lu, Liping.
In: Journal of Banking and Finance, 01.01.2018.Research output: Contribution to Journal › Article › Academic › peer-review
TY - JOUR
T1 - Households rejecting loan offers from banks
AU - Bai, Yiyi
AU - Lu, Liping
PY - 2018/1/1
Y1 - 2018/1/1
N2 - 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.
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.
KW - Concentrated lender
KW - Information advantage
KW - Mortgage lending
UR - http://www.scopus.com/inward/record.url?scp=85047793897&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=85047793897&partnerID=8YFLogxK
U2 - 10.1016/j.jbankfin.2018.04.018
DO - 10.1016/j.jbankfin.2018.04.018
M3 - Article
JO - Journal of Banking and Finance
JF - Journal of Banking and Finance
SN - 0378-4266
ER -