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Households rejecting loan offers from banks

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  • Bai, Yiyi
  • Lu, Liping

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.

Suggested Citation

  • Bai, Yiyi & Lu, Liping, 2020. "Households rejecting loan offers from banks," Journal of Banking & Finance, Elsevier, vol. 119(C).
    • Handle: RePEc:eee:jbfina:v:119:y:2020:i:c:s0378426618300918
    DOI: 10.1016/j.jbankfin.2018.04.018
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    References listed on IDEAS

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    Cited by:

    1. Antoniades, Adonis, 2021. "Monetary easing and the lending concentration channel of monetary policy transmission," Journal of Banking & Finance, Elsevier, vol. 133(C).

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    More about this item

    Keywords

    Mortgage lending; Information advantage; Concentrated lender;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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