Competition in Mortgage Markets: The Effect of Lender Type on Loan Characteristics
This article examines how competition among lenders affects mortgage loan characteristics. The author finds that, on average, banks issue safer mortgages than independent mortgage banks. Further, mortgages from banks with a branch in the local market where the property is tend to be safer than mortgages from banks without a local branch. Changes in market shares among lender types (local bank, nonlocal bank, or independent mortgage bank) that lead to higher loan risk also are associated with better borrower quality. Increasing the local market share of a lender type raises loan risk and borrower quality at that lender type.