Neighborhood Information and Home Mortgage Lending

Bank Branch Presence and Access to Credit in Low-to-Moderate Income Neighborhoods

“…Mester, Nakamura, and Renault (1998) show that tracking a firm's checking account balances may provide the bank useful information for detecting problems early on. Avery et al (1999) find that banks have found evidence supporting the predictions of the spatial-price-discrimination (SPD) models; i.e., the borrowing costs increase as the lender gets closer to the borrower but decline if there are other competing lenders nearby (Degryse and Ongena, 2005;Agarwal and Hauswald, 2006). The intuition is that the lender's proprietary information allows it to earn monopoly rents from its dealings with the borrower.…”

The role of information externalities and scale economies in home mortgage lending decisions

“…Both Ling and Wachter [9] and Harrison [7] focused on data for particular metropolitan areas, measuring externalities at the Census tract level, and found support for an effect from recent home sales in the tract. Using nationwide data from 1990-1991, Avery, Beeson, and Sniderman [1] fail to find support for industry-level information externality effects of recent lending behavior within Census tracts. This result is at least partly due to their inclusion of controls for lender-specific activity in the tract.…”

“…The primary exception is Avery, Beeson, and Sniderman [1], who argue that there may be effects internal to the bank that arise from economies of scale in gathering information about the neighborhood in the process of making a loan decision (which may also decrease the uncertainty associated with a house appraisal). 2 Our models also incorporate controls that capture potential scale effects.…”

“…This finding supports the argument that geographical factors should not matter after controlling for individual characteristics (including the loan-to-value ratio). 1 Lang and Nakamura [8] have posed a theory in which neighborhood characteristics play a role in the loan-decision process. The basic theory works through the lender's uncertainty about the accuracy of the appraised value for properties in neighborhoods with few recent transactions.…”

Persistence of Prejudice: Estimating the Long Term Effects of Redlining

“…4 Others such as Glaeser and Gyourko (2005) and Rosenthal (2008) also speak to the connection between city growth and decline and the life-cycle of a city's housing stock.…”