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Working Paper

Beyond the Transaction: Depository Institutions and Reduced Mortgage Default for Low-Income Homebuyers

We evaluate the effects of the lending institution and soft information on mortgage loan performance for low-income homebuyers. We find that even after controlling for bank selection, those who receive a loan from a local bank are significantly less likely to become delinquent or default than other bank or nonbank borrowers, suggesting an information effect. These effects are most pronounced for higher-risk borrowers, who likely benefit more from informational advantages of local banks. These findings support previous research on small business lending and provide additional explanation for observed differences in mortgage loan performance between bank and nonbank lenders.

Working Papers of the Federal Reserve Bank of Cleveland are preliminary materials circulated to stimulate discussion and critical comment on research in progress. They may not have been subject to the formal editorial review accorded official Federal Reserve Bank of Cleveland publications. The views expressed in this paper are those of the authors and do not represent the views of the Federal Reserve Bank of Cleveland or the Federal Reserve System.


Suggested Citation

Ergungor, O. Emre, and Stephanie Moulton. 2011. “Beyond the Transaction: Depository Institutions and Reduced Mortgage Default for Low-Income Homebuyers.” Federal Reserve Bank of Cleveland, Working Paper No. 11-15. https://doi.org/10.26509/frbc-wp-201115