Posted rates and mortgage lending activity

In many metropolitan areas (MSAs) newspapers post mortgage terms for lenders in a manner designed to permit an easy comparison of discount points and note rates. Using these advertised rates for 73 lenders in three MSAs we examine 1) how applicants respond to short-run changes in relative rates, and 2) the relationship between the services provided and quality of applications received by lenders and their long-term market positions. We find that applicant flows increase when lenders lower their rates. We also find that persistent cross-lender differences in rates are associated with differences in product quality reflected in processing times, loan sales, and FHA/VA lending; and that high-risk borrowers tend to apply to lenders posting above-average rates.     

Collateralization,Bank Loan Rates,and Monitoring

We show that collateral plays an important role in the design of debt contracts, the provision of credit, and the incentives of lenders to monitor borrowers. Using a unique data set from a large bank containing timely assessments of collateral values, we find that the bank responded to a legal reform that exogenously reduced collateral values by increasing interest rates, tightening credit limits, and reducing the intensity of its monitoring of borrowers and collateral, spurring borrower delinquency on outstanding claims. We thus explain why banks are senior lenders and quantify the value of claimant priority.     

Public Information and Coordination: Evidence from a Credit Registry Expansion

This paper provides evidence that lenders to a firm close to distress have incentives to coordinate: lower financing by one lender reduces firm creditworthiness and causes other lenders to reduce financing. To isolate the coordination channel from lenders' joint reaction to new information, we exploit a natural experiment that forced lenders to share negative private assessments about their borrowers. We show that lenders, while learning nothing new about the firm, reduce credit in anticipation of other lenders' reaction to the negative news about the firm. The results show that public information exacerbates lender coordination and increases the incidence of firm financial distress.     

Are Commercial Mortgage Defaults Affected by Tax Considerations?

We study whether tax considerations are an important determinant of commercial mortgage default. We also study whether large lenders are better informed, or better at interpreting information for lending purposes, and hence have lower foreclosure rates; whether lenders have more information on larger borrowers than smaller borrowers, and hence have lower foreclosure rates on larger loans; and whether commercial mortgage defaults are related to debt service coverage and loan-to-values, both initial and contemporaneous. The paper’s main findings are fourfold. First, holding all else equal, there is evidence that tax considerations influence investors’ decisions about when to “put” assets to lenders. The results are consistent with the argument of Constantinides (J Financ Econ 13:65–89, 1984). Second, the evidence suggests that large lenders are especially knowledgeable about commercial mortgage borrowers and commercial property markets, in that they have lower foreclosure rates than smaller lenders. Third, on the question of whether lenders have more information on larger borrowers than smaller borrowers, we find that larger loans have, on average, lower default rates than smaller loans. Fourth, the findings suggest that lower default rates are associated with higher debt service coverage ratios, both initial and contemporaneous.     

Financial expertise on audit committees of loan applicants: a research note to test the effects on lending decisions

The purpose of this study is to examine whether audit committee financial expertise matters when making commercial lending decisions. Commercial lenders rely on audited financial statements in making lending decisions, and the quality of these financial statements is impacted by the capabilities of audit committees having oversight of financial reporting. It is widely believed that this oversight is enhanced when audit committees contain members with financial expertise. A behavioural experiment is conducted where commercial lending officers make risk assessments and provide probabilities of granting loans based on a hypothetical scenario. This paper finds insufficient evidence to conclude that the existence of financial expertise on audit committees makes a difference to lenders. When replacing audit committee members, however, financial expertise does appear to matter to lenders in some cases.     

Attitudinal Asymmetries and the Lender-Borrower Relationship: Survey Results on Farm Lending in Shandong,China

This paper addresses the problem of social interactions and the lender-borrower relationship by measuring the disconnect between borrowers and lenders across a wide range of lending-related attributes. The degree by which lenders and borrowers connect disconnect depends on whether lenders’ and borrowers’ perceptions across these attributes are symmetric or asymmetric. We compare field survey results from 120 loan officers at Rural Credit Cooperatives (RCCs) in China’s coastal Shandong province, and pair them with an existing survey on identical questions to 394 farm households in the same region. Pairing lenders’ perception towards borrowers regarding RCC microcredit lending mechanism, against borrowers’ perception towards lenders and how themselves were perceived by lenders in the same regards, we observe on many dimensions a disconnect between them in the context of lenders’ “care” towards borrowers, loan rejection, memberships of RCC and group guarantee, lending concerns, cost of borrowing, reasons for default, credit rationing, and lending preferences. This research provides financial institutions with outreach mechanisms to borrowers, while also training lenders to borrowers’ sensitivities.     

What Drives Default and Prepayment on Subprime Auto Loans?

This paper uses novel data on the performance of loan pools underlying asset-backed securities to estimate a competing risks model of default and prepayment on subprime automobile loans. We find that prepayment rates increase rapidly with loan age but are not affected by prevailing market interest rates. Default rates are much more sensitive to aggregate shocks than are prepayment rates. Increases in unemployment precede increases in default rates, suggesting that defaults on subprime automobile loans are driven largely by shocks to household liquidity. There are significant differences in the default and prepayment rates faced by different subprime lenders. Those lenders that charge the highest interest rates experience the highest default rates, but also experience somewhat lower prepayment rates. We conjecture that there is substantial heterogeneity among subprime borrowers, and that different lenders target different segments of the subprime market. Because of their higher default rates, loans that carry the highest interest rates do not appear to yield the highest expected returns.     

A Test of Cultural Affinity in Home Mortgage Lending

This paper assess cultural affinity as a potential explanation for observed racial disparities in mortgage rejection rates. Two formulations of the theory have evolved in the literature. The taste-based cultural affinity hypothesis asserts that lenders have a blanket preference for members of the same race, while the common bond hypothesis asserts that cultural affinity allows lenders to better assess the credit quality of members of the same race. The analysis involves tests that focus on the experiences of applicants with marginal credit quality, as the two theories offer conflicting predictions regarding their application patterns and treatment by lenders. The results of these tests provide weak support for the existence of taste-based cultural affinity, but contradict the predictions of the common bond form of the theory.     

Why don't Lenders renegotiate more home mortgages? Redefaults,self-cures and securitization

A leading explanation for the lack of widespread mortgage renegotiation is the existence of frictions in the mortgage securitization process. This paper finds similarly small renegotiation rates for securitized loans and loans held on banks' balance sheets that become seriously delinquent, in particular during the early part of the financial crisis. We argue that information issues endemic to home mortgages, where lenders negotiate with large numbers of borrowers, lead to barriers in renegotiation. Consistent with the theory, renegotiation rates are strongly negatively correlated with the degree of informational asymmetries between borrowers and lenders over the course of the crisis.     

Relationship lending and the transmission of monetary policy

Repeated interactions allow lenders to uncover private information about their clients, decreasing the informational asymmetry between a borrower and his lender but introducing one between the lender and competing financiers. This paper constructs a credit-based model of production to analyze how learning through lending relationships affects monetary transmission. I examine how monetary policy changes the incentives of borrowers and lenders to engage in relationship lending and how these changes then shape the response of aggregate output. The results demonstrate that relationship lending prevails in equilibrium, smoothes the steady state output profile, and induces less volatile responses to certain monetary shocks.     

运用抵押率降低贷款行业风险

恰当地管理贷款行业中存在的风险至关重要。长期以来,放贷人借助首付准则和抵押贷款保险来降低风险敞口。本文讨论了抵押贷款行业中风险管理的各种方法,着重讨论了欧美的情况。     

Informational Frictions and the Credit Crunch

In this paper, I estimate the magnitude of an informational friction limiting credit reallocation to firms during the 2007 to 2009 financial crisis. Because lenders rely on private information when deciding which relationship to end, borrowers looking for a new lender are adversely selected. I show how to separately identify private information from information common to all lenders but unobservable to the econometrician by using bank shocks within a discrete choice model of relationships. Quantitatively, these informational frictions appear to be too small to explain the credit crunch in the U.S. syndicated corporate loan market.     

The Informational Role of the Media in Private Lending

We investigate whether a borrower's media coverage influences the syndicated loan origination and participation decisions of informationally disadvantaged lenders, loan syndicate structures, and interest spreads. In syndicated loan deals, information asymmetries can exist between lenders that have a relationship with a borrower and less informed, nonrelationship lenders competing to serve as lead arranger on a syndicated loan, and also between lead arrangers and less informed syndicate participants. Theory suggests that the aggressiveness with which less informed lenders compete for a loan deal increases in the sentiment of public information signals about a borrower. We extend this theory to syndicated loans and hypothesize that the likelihood of less informed lenders serving as the lead arranger or joining a loan syndicate is increasing in the sentiment of media‐initiated, borrower‐specific articles published prior to loan origination. We find that as media sentiment increases (1) outside, nonrelationship lenders have a higher probability of originating loans; (2) syndicate participants are less likely to have a previous relationship with the borrower or lead bank; (3) lead banks retain a lower percentage of loans; and (4) loan spreads decrease.     

Asymmetric Information about Collateral Values

I empirically analyze credit market outcomes when competing lenders are differentially informed about the expected return from making a loan. I study the residential mortgage market, where property developers often cooperate with vertically integrated mortgage lenders to offer financing to buyers of new homes. I show that these integrated lenders have superior information about the construction quality of individual homes and exploit this information to lend against higher quality collateral, decreasing foreclosures by up to 40%. To compensate for this adverse selection on collateral quality, nonintegrated lenders charge higher interest rates when competing against a better‐informed integrated lender.     

Network centrality and funding rates in the e-MID interbank market

This paper empirically investigates the role of banks’ network centrality in the interbank market on their funding rates. Specifically we analyze transaction data from the e-MID market, the only electronic interbank market in the Euro Area and US, over the period 2006–2009 that encompasses the global financial crisis. We show that interbank spreads are significantly affected by both local and global measures of connectedness. The effects of network centrality increased as the financial crisis evolved. Local measures show that having more links increases borrowing costs for borrowers and reduces premia for lenders. For global network centrality, borrowers receive a significant discount if they increase their intermediation activity and become more central, while lenders pay in general a premium (i.e. receive lower rates) for centrality. This provides evidence of the ‘too-interconnected-to-fail’ hypothesis.     

Residential Mortgage Lending and Borrower Risk: The Relationship Between Mortgage Spreads and Individual Characteristics

The mortgage banking environment in Hong Kong is quite different from that in the United States. For example, the secondary mortgage market and mortgage insurance only started after 1997. Using a large data set on mortgages, we examine empirically how mortgage rates in this market vary with various individual borrower, property, and loan characteristics. We find that mortgage rates in Hong Kong do vary with individual characteristics, which suggests credit sorting according to both prepayment risk and default risk, as a higher mortgage rate is found to be related to either higher collateral (a lower loan-to-value ratio) or slower prepayment. The empirical results suggest that lenders in Hong Kong can observe the risk type of individual borrowers to a certain extent and charge a corresponding mortgage spread. Overall, the evidence is consistent with the sorting-by-observed-risk paradigm as in Berger and Udell (1990).     

Why Larger Lenders Obtain Higher Returns: Evidence from Sovereign Syndicated Loans

Lenders who make large funding commitments earn higher rates of return than those who make smaller commitments. We analyze a data set of sovereign syndicated loan contracts to document study and this phenomenon. We show that the “large lenders” in the lending syndicates earn a “return premium,” which is positively affected by the likelihood of future liquidity problems of the borrower. This finding suggests that the onus would be on the large lenders in particular to provide services, such as liquidity insurance and coordinating the workout. The return premium also increases in the fraction of banks among the larger syndicate members, suggesting that banks are special lenders in terms of addressing idiosyncratic liquidity problems.     

The Monitoring Incentive of Transactional and Relationship Lenders: Evidence from the Syndicated Loan Market

We identify a group of lenders specializing in syndicating tradable loans (referred to as transactional lenders [TLs]). We show that borrowers borrowing from TLs experience worse operating performance and more severe credit quality deterioration after loan origination compared to those borrowing from relationship lenders. This difference in the postloan issue performance remains robust after controlling for the potential self‐selection of the lender type, or using percentage of traded loans out of all syndicated loans to capture lenders’ propensity for syndicating tradable loans. Our results also remains qualitatively the same after we drop various types of risky loans.     

Closing the Ledger

Using a unique, hand‐collected final dataset of 57 management buy‐outs in distress, this paper analyses the determinants of bankruptcy costs under the UK's receivership regime. We show that the direct costs of receivership consume a significant percentage of the receivership proceeds, with mean receivership costs equal to 30% of receivership proceeds. Importantly we find that while the average length of receivership was 3.0 years, 95% of repayments are made on average within 1.9 years. Our findings do not support the argument that multiple lenders create inefficiencies resulting in significantly lower secured creditor recovery rates. However, when there are multiple secured lenders, the senior secured lender gains at the expense of other secured creditors. We find that receivership costs are positively related to the proportion of secured debt repaid and that, consistent with the presence of a scale effect, the relative significance of receivership costs declines as firm size grows. Receiverships last longer the larger the amount of debt owed to the secured lenders.     

Are current syndicated loan alliances related to past alliances?

The odds of a current syndicate relationship between two lenders depend upon their previous alliances. The odds are significantly higher [lower] and strongest for a current lead–participant relationship with a continuation [reversal] of their previous roles. To illustrate, the odds are nearly four times higher when two lenders have allied in the previous 5 years. The strength of lead–participant syndicate relationships between two lenders with same-ordered roles is most sensitive to the lead bank’s reputation and informationally opaque participants tend to have stronger relationships with lead banks. Lenders exhibit home bias in their syndicate alliances since ongoing relationships are stronger with domestic counterparts.