The Neighborhood Geography of Mortgage Lending

<p><span>Mortgage-related costs are an important driver of total expenditure for Americans in owner-occupied housing. While credit risk and origination timing explain much of the variation in mortgage-related costs, a growing literature highlights the existence of residual cost dispersion across observably similar borrowers and mortgages. In this report, I use confidential Home Mortgage Disclosure Act (HMDA) data from 2018–2020 to explore one potential correlate of variation in mortgage costs: neighborhood-level differences in the number of mortgage-originating institutions (mortgage originators per capita). Mortgage originators per capita differed notably across neighborhoods and was correlated with both neighborhood-level demographic characteristics and application outcomes. Specifications that include Government Sponsored Enterprise (GSE) price fixed effects, loan amount fixed effects, and origination month fixed effects indicate that consumers in neighborhoods with more originators per capita are less likely to have their application rejected and pay less in origination charges and total loan costs. The results confirm that mortgage costs, albeit not interest rates, differ importantly between neighborhoods with disparate levels of originating institutions per capita. Policies that reduce barriers to consumer learning about available mortgage products could potentially reduce housing costs and decrease mortgage price dispersion, particularly for consumers in neighborhoods that have fewer lending institutions originating mortgages. &nbsp; &nbsp;&nbsp;</span></p>