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 | |
| Publication status | Published - Oct 2020 |
Keywords
- Concentrated lender
- Information advantage
- Mortgage lending