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We find that mortgage loans originated after the adoption of the inevitable disclosure doctrine (IDD; a mechanism discouraging loan officers' labor mobility) have a lower default probability, a higher loan modification rate, and a lower foreclosure rate. These effects are unaccompanied by any reduction in loan supply and contribute to more stable housing prices. Using the adoption of the Uniform Trade Secrets Act as an alternative identification generates consistent results. Overall, our findings suggest that restricting loan officers' labor mobility leads to better ex ante screening and ex post monitoring, improving the origination efficiency for U.S. residential mortgage loans. [ABSTRACT FROM AUTHOR]

Management earnings forecasts (MEFs) may reduce information risk by corroborating the inferences that lenders draw from their private communication with borrowers. Consistent with this idea, we find that among firms with a general policy of issuing MEFs, those providing MEFs in the 6 months before loan origination with a forecast horizon beyond the origination date enjoy lower loan spreads. The frequency and precision of MEFs are also negatively associated with loan spreads. The associations are stronger when lenders' need for corroboration of their private information is expected to be greater. The associations are not driven by a firm's general information environment, signaling of managerial ability, opportunistic disclosure, or competition between public and private debt markets. Moreover, the issuance, frequency, and precision of MEFs are associated with loan amounts more spread out among participating lenders, suggesting that MEFs also reduce information asymmetry within a loan syndicate. Our study provides insight into the corroboration role of publicly disseminated MEFs in private loan markets. [ABSTRACT FROM AUTHOR]

Do different loan application formats affect consumer loan requests? Six studies show that when consumers are asked to provide a preferred monthly payment (MP) (vs. loan amount [LA]), they request different principal amounts. This is because these loan application formats differ in the scale-compatible information they bring to consumers' mind. When LAs are elicited, consumers think of and request the cost of the expenditure they seek to finance. When MPs are elicited, however, consumers think of their monthly budget slack to construct and then request MPs they perceive to be affordable. For lower cost loans with a given term and interest rate, the MP (vs. LA) format results in larger principal requests. This effect reverses for higher cost acquisitions because individuals' budget slack caps out around $500 per month. These studies provide insight into how consumer loan application formats can affect consumer borrowing, as well as the psychological underpinnings responsible for the effect. Theoretical, managerial, and consumer welfare implications of the findings are discussed. [ABSTRACT FROM AUTHOR]

This article examines the puzzle of why China's two policy banks, China Development Bank (CDB) and the Export‐Import Bank of China (Eximbank), have lending portfolios for power‐generation projects in Africa that have drastically different levels of carbon dioxide emissions. From the supplier side, Eximbank balances two imperatives: Beijing's ideational ambition as a new development provider to African recipients with sustainability commitments, and China's industrial goal to offshore non‐renewable capacity. In contrast, the CDB prioritizes its commercial interests, which results in the bank lending solely for coal projects. On the demand side, Eximbank's concessional capital has emerged as a second‐best option among international financial sources for renewable and hydropower generation projects. Conversely, CDB's market‐rate lending makes it the fiscal last resort for host countries seeking financial support for thermal‐power projects which are shunned by other financiers. This divergence can be understood through the polycentric development finance model, which captures the parallel decision‐making institutions governing Chinese energy financing in Africa. Specifically, the lending decisions of Eximbank are linked with institutionalized policy processes, translating priorities of Chinese and African state actors. Meanwhile, the loan origination processes of CDB are more independent of state actors, allowing greater autonomy for the financier to pursue commercial interests. [ABSTRACT FROM AUTHOR]

The income smoothing (IS) literature connected with changes in the external environment provides unclear results whether this phenomenon occurs in expansion or in crisis. Given that a substantial amount of credit risk is generated in retail banking, this study exploits a large number of micro‐loan portfolio level data of a systemic Greek bank and examines, for the first time, the IS behaviour at the retail banking level, contrasting the expansion period (2006–2008) with the financial crisis period (2009–2011). This specific case study provides more granular data compared with traditional archival studies, thus allowing the immediate and more frequent identification of exogenous (such as crisis effects) and endogenous (such as the geographic origination of loan portfolios) features that may affect IS practices. Based on the association between pre‐provision loan income and loans loss provisions as a proxy for IS, we employ the robust Mean Group estimator (Pesaran and Smith, Journal of Econometrics, 1995;68(1):79–113) and find that this association is higher in expansionary periods and declines in recession. Moreover, we conclude that the IS behaviour is affected by geographical features of loan portfolios. [ABSTRACT FROM AUTHOR]

Using energy firm data and the 1997 introduction of weather derivatives as a natural experiment, we document an average 21‐basis‐point interest reduction in bank loans after borrowers hedge with weather derivatives. This saving increases among borrowers with higher risk or less complex financial reports, and during more uncertain market conditions or when investors pay more attention to climate risks. Our results are robust to endogeneity‐corrected methods. Hedging firms are more willing to pledge collateral, accept stricter covenants and exhibit lower risks and a lower likelihood of covenant violations within 1 year following loan origination. We also find hedging firms have lower bond yields and a lower bank debt ratio, indicating that the benefits from hedging with weather derivatives extend to the public debt market. Overall, our findings demonstrate important financial implications of hedging using weather derivatives. [ABSTRACT FROM AUTHOR]

Unequal homeownership access is a major component of ethno-racial stratification. Previous studies have demonstrated substantial ethno-racial disparities in access and outcomes throughout the homeownership process. In addition, prior research has assumed that mortgage applicants have a similar age distribution across ethno-racial groups. This paper draws on annual data from the 2018 and 2019 Home Mortgage Disclosure Act (HMDA) to assess variation in ethno-racial disparities in loan outcomes associated with different ages. I show that ethno-racial disparities in loan outcomes vary tremendously when considering the age of the applicant. I demonstrate that loan rejections and high-cost loan originations are highest among Latino and Black borrowers across age groups compared to Whites. Black borrowers have worse adverse loan outcomes than Whites, regardless of age. Depending on the adverse loan outcome, Asians perform similarly or underperform compared to Whites. In addition, older applicants are more likely to be denied a mortgage loan than younger applicants, while the trends for high-cost loans vary considerably across ethno-racial groups. When examining high-cost loan originations, Latinos above 65 years old (who are the best performing Latino sub-group) underperform Whites regardless of age. [ABSTRACT FROM AUTHOR]

During the past decades, industrial capitalism has been transformed into something which has been dubbed 'Casino Capitalism', 'Turbo Capitalism' or 'Money Manager Capitalism' by different authors: financial accumulation has outpaced real accumulation. This process of 'financialisation' has been discussed quite intensively in the literature with respect to its historical determinants and its macroeconomic effects, yet it has not been studied thoroughly whether the shift from the production and allocation of commodities and services towards the origination and distribution of loans and assets as the main activity of non-financial companies challenges our theoretical principles and, therefore, demands a new macroeconomic approach. The objective of this paper is to argue in a preliminary way that financialisation is not merely to be understood as the relative growth of the financial sector based on a deepening of financial intermediation but as a structural transformation of the core business of non-financial firms. This is based on an extended post-Keynesian theory of monetary production and an application of Minskian short- and long-term instability cycles. [ABSTRACT FROM AUTHOR]

Despite the shift to private sector-driven affordable housing in Nigeria for decades, the housing deficit has continued to increase to the disadvantage of low-income families. This paper explores the enabling strategies for stimulating private-driven affordable housing in Nigeria. A case study of the Millard Fuller Foundation projects was undertaken, and semi-structured interviews were administered to 12 residents of the estates and the developer to explore their experience and highlight the considerations for designing appropriate strategies. The data generated were analysed using thematic analysis with the support of Nvivo. This study identifies four major components of construction costs—land, design, materials, and finance—that policy improvement can target to stimulate private investment. It shows that developers are likely to adopt practices that will reduce these costs with repercussions for end-users. Mindful of this, and the concern to make returns on investment, strategies should aim to harmonise both developers' interest and that of the end-users through widespread infrastructural development to make land available in all locations, and an incremental owner-building approach so that end-users can take decisions for their housing. Furthermore, access to National Housing Fund (NHF) mortgages should be enhanced by recognising supplementary incomes in the loan origination procedures. [ABSTRACT FROM AUTHOR]

According to IVS 2023 the terminal value of a DCFA can be calculated in respect of the three fundamental appraisal approach: market, income and cost. Specifi- cally, "Where the asset is expected to continue beyond the explicit forecast period, valuers must estimate the value of the asset at the end of that period. The terminal value is then discounted back to the valuation date, normally using the same discount rate as applied to the forecast cash flow" (IVS 105 Valuation Approaches and Methods, para 50.20). Although academic and professional normally refer to direct capitalization to calculate the exit value (scrap value, going out value) different approaches are possible. In particular it is possible to calculate the exit value using the market approach. The present work starts from an original model of Discounted Cash Flow Analysis proposed by Simonotti (2006) to propose possible alternative to the original formula. The model proposed, as defined for the paper "Prudential Value DCFA Formula (PVF)" provides methodological alternatives to the original model in order to apply the method in different property market conditions allowing the appraiser to represent even property market in recovery or falling market phase, or prudential assessment of worth and opinion of value. In particular the proposed model replace the compound growth of the property value included in the traditional Simonotti's model, with a linear growth or even a combination of both. The paper emphasize how property valuation standards can not be considered as immutable but they may be considered in constant evolution. In delivering an opinion of value for mortgage lending purposes the approach of professional academician and real estate analyst need to be able to respond to change of external conditions, in consideration of the sustainability of the cash flows in the long term, for the entire duration of the loan (and therefore for the purpose of identifying the long-term sustainable value of the asset). The approach is functional, inter alia, for the purpose of identifying the "prudential value" as defined by the innovative banking regulation (Basel 3) according to the definition of loan-to-value (LTV) ratio for loan origination and monitoring. [ABSTRACT FROM AUTHOR]

We analyze the impact of soft information on US mortgages for default prediction and provide a new measure for lender soft information that is based on the interest rates offered to borrowers and incremental to public hard information. Hard and soft information provide for a variation in annual default probabilities of approximately 3%. Soft information has a lesser impact over time and time since origination. Lenders rely more on soft information for high‐risk borrowers. Our study evidences the importance of soft information collected at loan origination. [ABSTRACT FROM AUTHOR]

We study the effects of mark-to-market accounting (MTM) for banks following the originate-to-distribute lending model. Banks have expertise in originating loans, but it is costly for them to retain the loans on their books. We study how the accounting measurement of the retained loans affects the banks' origination and retention decisions. We show that, relative to historic cost accounting (HC), MTM has three consequences. First, it improves the accuracy of loan measurement ex post. Second, it forces banks to retain more risk exposure on their own books. Finally, it can reduce ex ante origination efforts and lower the average quality of loans in the economy. JEL Classifications: G01; G21; G30; M41. [ABSTRACT FROM AUTHOR]

We develop a model in which accounting information and prudential regulation interact to affect banks' incentives to originate loans. Prudential regulators impose capital requirements to prevent banks from taking excessive risk. However, regulators cannot commit to ex ante efficient intervention and, instead, respond to ex post accounting information. We show that capital requirements and accounting measurement are substitutes when considered separately. By contrast, when considered jointly, accounting measurement and capital requirements are complementary tools that affect the level and efficiency of credit decisions. Comparative statics link capital requirements, quality of accounting information, and regulatory intervention to credit market conditions. An upshot of our analysis is that by appropriately optimizing the information from expected loss models, prudential regulators may design looser capital requirements to spur more bank lending. JEL Classifications: G21; G28; M41; M48. [ABSTRACT FROM AUTHOR]

I examine whether banks manage syndicated loan originations to achieve financial reporting goals. Using a large sample of loans and relying on a within-quarter analysis, I find that publicly traded banks that narrowly beat earnings benchmarks initiate more loans in the last month of the fiscal quarter to book origination fees. Relative to otherwise similar loans, these loans are associated with front-end fees that are 4.2% higher but have credit spreads that are 3.3% lower, resulting in a net price discount of 2.5%. The findings are stronger for bigger banks, for lenders that are funding-constrained, and for banks whose managers' pay is more sensitive to stock performance. Further, these loans underperform in terms of future defaults and rating downgrades. Finally, I find that while the hypothesized earnings management helps banks raise capital in the short term, it is costly in the longer term, as it is associated with lower capital and profitability ratios. Overall, I provide model-free evidence on banks' real earnings management and the costs of this behavior. [ABSTRACT FROM AUTHOR]

This article investigates the determinants of bank loan survival time in an emerging economy for 'micro', 'small' and 'medium'‐sized enterprises. We use proprietary data from the Central Bank of Mexico for approximately 1.5 million company loans between January 2010 and May 2017. Our results show that firm' characteristics at the time of loan origination, and lagged macroeconomic factors have a significant impact on the loan survival times. Further tests on model validation show that our fitted survival model performs reasonably well in out of sample forecasts. [ABSTRACT FROM AUTHOR]

Using home purchase loan application data, we study buyer responses to the uncommon occurrence of the appraised value coming in below the contract price (i.e. a low appraisal), which sharply raises the probability of downward price renegotiation. We propose that two mechanisms drive the higher renegotiation rates. First, a liquidity channel, visible for financially constrained borrowers for whom a low appraisal impacts financing costs. Second, for financially unconstrained borrowers, we identify a news channel whereby the information content of the low appraisal alone induces borrower renegotiation. Importantly, we show that low appraisals result in lower renegotiated prices through these channels without a substantially lower likelihood of a loan application leading to loan origination or notably longer times from contract signing to sale. [ABSTRACT FROM AUTHOR]

The availability of digitally verifiable employment data significantly expands credit access for economically disadvantaged customers, and at the same time, profitably expands lenders' loan portfolio. What is the value of verified employment data in consumer lending? We study this question using a data set covering all employment verification inquiries to Equifax. Using a difference-in-differences approach, we analyze the changes in applicants' loan outcomes after their employers join Equifax's digital verification system, which provides lenders with an efficient way of accessing the (employer-) verified employment data in auto loan applications. Holding the employment status constant, we find that the availability of digitally verified data significantly expands credit access: the loan origination rate increases by 35.5% on average, and is more significant among deep subprime (146%) and subprime consumers (44%). The interest rates charged on these loans rise only slightly. The expanded credit access also benefits lenders, with an estimated 19.6% increase in profit. This is because the benefit of the market expansion effect dominates the cost of a higher delinquency risk among the expanded loan portfolio. Our results suggest that, besides seeking new data sources, managers and policy makers should also consider ways to extract more value from existing data. [ABSTRACT FROM AUTHOR]

Summary: Drechsler et al. (2017) present a novel reformulation of the bank lending channel of monetary transmission based on market power in local deposits markets, which they term the deposits channel. In this paper, we first perform a successful narrow replication of their key empirical results. We then revisit their results on lending in two ways. First, recent studies have pointed out the unique dynamics of credit card loans in Community Reinvestment Act loan origination data. When accounting for this heterogeneity, we find key results are sensitive to the inclusion of credit card banks that raise funds outside of local deposit markets. Second, we show that inconsistencies with related empirical studies can be explained by differences in market power measure, sample period, and the inclusion of alternative control variables. The results highlight that market power on opposing sides of bank balance sheets can impact monetary transmission through alternative channels. Overall, this paper suggests the mechanisms underlying the response of lending to monetary policy remains an important open question. [ABSTRACT FROM AUTHOR]

In recent years Artificial Intelligence (AI) has gained much popularity, with the scientific community as well as with the public. Often, AI is ascribed many positive impacts for different social domains such as medicine and the economy. On the other side, there is also growing concern about its precarious impact on society and individuals, respectively. Several opinion polls frequently query the public fear of autonomous robots and artificial intelligence, a phenomenon coming also into scholarly focus. As potential threat perceptions arguably vary with regard to the reach and consequences of AI functionalities and the domain of application, research still lacks necessary precision of a respective measurement that allows for wide-spread research applicability. We propose a fine-grained scale to measure threat perceptions of AI that accounts for four functional classes of AI systems and is applicable to various domains of AI applications. Using a standardized questionnaire in a survey study (N = 891), we evaluate the scale over three distinct AI domains (medical treatment, job recruitment, and loan origination). The data support the dimensional structure of the proposed Threats of AI (TAI) scale as well as the internal consistency and factoral validity of the indicators. Implications of the results and the empirical application of the scale are discussed in detail. Recommendations for further empirical use of the TAI scale are provided. [ABSTRACT FROM AUTHOR]

Regulatory data shows large differences between large and small banks' response to the Paycheck Protection Program (PPP). Large bank loan originations are smaller than predicted based on operational characteristics and historical lending patterns. One possible explanation is that large banks put greater emphasis on the legal and reputational risks associated with PPP loans because of their prior experience with similar government programmes. A second possibility is that there were systematic differences in large and small bank PPP loan demand. While bank-specific PPP loan demand is unobserved, indirect evidence is inconsistent with the customer demand explanation. On balance, circumstantial evidence favours the hypothesis that large banks took a more cautious approach to PPP lending to minimise the legal and reputational risks that have been endemic to past government loan guarantee programmes. [ABSTRACT FROM AUTHOR]

This study examines the relation between securitization and loan performance using a comprehensive dataset from a major national mortgage lender. Loans remaining on the bank's balance sheet ex post incurred higher delinquency rates than sold loans, contrasting the negative relation between screening efforts and ex ante probability of loan sale explored by prior studies. Moreover, the performance gap between sold and retained loans was wider among the subsample of loans that were perceived as easier to resell. The investors'seeming advantage over the originating bank can mostly be explained by information revealed during the time between loan origination and sale. [ABSTRACT FROM PUBLISHER]

This paper explores the transmission of US monetary policy through US banks to emerging market economies (EMEs) and the role that stress tests play in this transmission. Data on US banks' monthly commercial and industrial loan originations shows that: (a) US bank lending to EMEs was sensitive to domestic monetary policy changes during the zero‐lower bound period. (b) Effects of monetary easing were heterogeneous across banks and depended on banks' stress test results, a proxy for their capital strength. Only banks that comfortably passed the stress tests issued more loans to EME borrowers. (c) Effects of monetary tightening were more similar across banks. (d) Banks shifted their lending to safer borrowers within EMEs in response to monetary easing, leaving the risk of their overall loan books unchanged. These results support the hypothesis that bank capital affects the transmission of easier monetary policy, including across borders. We conjecture that bank lending to EMEs during the zero‐lower bound period would have been even higher had the United States not introduced stress tests for their banks. [ABSTRACT FROM AUTHOR]

Purpose: This study adds a new dimension in the study of racial and gender bias in farm lending. Most previous studies analyzed the separate effects of race and gender attributes on loan approval decisions. The analysis focuses on the stipulation of loan terms (loan amount, interest rate and maturity) among approved farm loan applications. The time period analyzed spans from 2004 until 2014 during which the government has undertaken reforms to improve delivery of loan services to its clientele of minority farmers. Thus, this study's findings could help validate the effectivity of such institutional reforms affecting Farm Service Agency (FSA) lending operations. Design/methodology/approach: This study utilizes a national direct loan origination data from the FSA of the U.S. Department of Agriculture (USDA) collected from 2004 to 2014. The analysis begins by identifying significant differences in cross-tabulations of loan terms among different racial and gender classes. Seemingly unrelated regression (SUR) regression techniques are then applied for a system of equations involving the three loan packaging components. The combined effects of the prescribed loan packaging terms are subsequently analyzed under a simulation-optimization framework. Findings: Regression results validate that indeed, relative to White American borrowers, certain minority borrowers are accommodated with lower loan amounts at higher interest rates and with shorter maturities. However, these decisions seem to be prompted by credit risk management considerations. The most compelling findings include the insignificance of all double minority labeling variables, except for the interest rate equation that even produced favorable results for Hispanic American females. Simulation-optimization results further reinforce that even when one or two unfavorable loan terms are included in the packaging, double minority borrowers end up with better profitability and liquidity positions. Practical implications: This study provides a different perspective in dealing with the controversial minority bias in lending by presenting evidence gathered from a government farm lending institution. The USDA-FSA has been sued in numerous occasions by minority borrowers. Since then, however, it has deliberately implemented institutional reforms to rectify previous errors. This study provides empirical evidence strengthening FSA's claim of its intention to improve its delivery of loan services, especially for its socially disadvantaged borrowers with double minority classification. Originality/value: This study pioneers the analysis of the double minority labeling effect on farm lending decisions. Its contributions to literature are further enhanced by its goal to validate the effectiveness of FSA institutional reforms undertaken since the early 2000s in order to improve credit access of and delivery of credit services to minority farm borrowers, especially those that belong to more than one minority classification. [ABSTRACT FROM AUTHOR]

Peer‐to‐peer (P2P) lending has emerged as a network form of crowdfunding that facilitates the loan originations outside the traditional banking model. In China, the combination of imperfect financial development and Internet technology has led to the widespread growth of a P2P network lending market. Using the theoretical lens of information asymmetry, we identify the key sources of risks facing contemporary Chinese P2P companies. Results from our two regression models reveal several factors that can be used as predictors for risk and financial management, including marriage, income, and house property. Our findings also show that collective inference by non‐expert lenders can accurately draw an inference from soft/nonstandard information. The construction of such a predictive system is important for ensuring the good operation of P2P network lending platforms in emerging economies. [ABSTRACT FROM AUTHOR]

We develop a framework to explore the effect of credit ratings on loan origination. We show that ratings endogenously shift the economy from a signaling equilibrium, in which banks inefficiently retain loans to signal quality, toward an originate‐to‐distribute equilibrium with zero retention and inefficiently low lending standards. Ratings increase overall efficiency, provided that the reduction in costly retention more than compensates for the origination of some negative net present value loans. We study how banks' ability to screen loans affects these predictions and use the model to analyze commonly proposed policies such as mandatory "skin in the game." [ABSTRACT FROM AUTHOR]

We study the impact of green building on loans in the CMBS market. A hazard model shows green buildings carry 34% less default risk, all else equal. A matched‐sample analysis gives similar results. We attribute the effect to a loan‐to‐value channel, where risk is lowered by a green price premium. The benefit comes at least partly from the level of green achievement, not only the label itself. Loans on buildings that were green at loan origination have slightly better terms than loans on nongreen buildings. That difference is growing over time, but the effect is economically small compared to default risk. [ABSTRACT FROM AUTHOR]

This paper provides an inductive theoretical framework that explains how and why vertical disintegration happens, showing that transaction costs are an incidental feature of industry evolution. I find that gains from intrafirm specialization set off a process of intraorganizational partitioning, which simplifies coordination along parts of the value chain. Likewise, latent gains from trade foster interfirm cospecialization, which leads to information standardization. Given standardized information and simplified coordination, new intermediate markets emerge, breaking up the value chain, allowing new types of vertically specialized firms to participate in an industry, and changing the industry's competitive landscape. [ABSTRACT FROM AUTHOR]

Is there discrimination in mortgage-loan origination and pricing? If so, does the level of discrimination differ before and after the eruption of the subprime crisis? Using data from 6.5 million loan applications from 2004 through 2013, we propose a novel approach aiming to substantially lower the notorious omitted-variable bias of the Home Mortgage Disclosure Act (HMDA) database and identify the level of racial, ethnic, and gender discrimination in mortgage lending across the United States. In stark contrast with previous studies, we find, on average, very little discrimination in loan origination. Although discrimination increases somewhat after 2007, its probability remains well below 1%. In contrast, we find that white (non-Hispanic) applicants pay a lower spread on the originated loans by 0.37 (0.11) basis points, a result that almost entirely comes from the pre-crisis period. [ABSTRACT FROM AUTHOR]

This paper examines the extent to which a fiscal stimulus involving durable goods induces financial distress and causes debt burden. Using account-level loan data to study the impact of Thailand's first-car-buyer tax rebate scheme at both individual and postcode levels, we find that the program led to higher loan delinquency and crowded out other loan originations, which are symptoms implied by excessive debt burden. The adverse impacts were more pronounced for passenger car buyers than for truck buyers and there were local negative spillovers to non-participants. Our findings raise questions about the merit of promoting economic growth by inducing debt-fueled spending and suggest that the design of durable goods stimulus policy should focus more on productive business durables than on consumer durables. [ABSTRACT FROM AUTHOR]

We exploit the preemption of national banks from state laws against predatory lending by the Office of the Comptroller of the Currency (OCC) as a quasi-experiment to study the effect of deregulation and its interaction with competition on the supply of complex mortgages. Following the preemption ruling, national banks significantly increased their origination of loans with prepayment penalties relative to national banks in states without anti-predatory-lending laws. We highlight a competition channel: in counties where OCC-regulated lenders had larger market shares, non-OCC-regulated lenders responded by increasing their supply of contracts with riskier features, such as deferred amortization, which were not restricted by the state anti-predatory-lending law. Non-OCC lenders were able to lure borrowers into these higher-margin contracts by increasing their appeal with teaser rates. This paper was accepted by Tyler Shumway, finance. [ABSTRACT FROM AUTHOR]