Nonlocal mortgage lending and the secondary market involvement

Abstract

This paper documents that out-of-state nonlocal mortgages, originated by statechartered banks, are more likely to be subprime (high-priced) loans and are sold more to the secondary market than other types of mortgages, based on the data collected under the Home Mortgage Disclosure Act from 2005 to 2008. We find that the demand for nonlocal mortgages is larger in the neighborhood where the denial rate of mortgage applications to local banks is higher, suggesting that the borrowers of nonlocal mortgages are less creditworthy. Furthermore, a bank makes more nonlocal mortgages to out-of-state borrowers if it is involved more in the secondary market.