The Real Consequences of Bank Mortgage Lending Standards

Bank loan underwriting standards are important for credit availability. We match the Federal Reserve’s Senior Loan Officer Opinion Survey with the Home Mortgage Disclosure Act and other datasets over 1990 to 2013. Tightened standards are associated with a 1 percentage point increase in application denial rates – more for banks holding more loans on balance sheet – and a 16 percent decrease in riskier loans. Markets with more exposure to banks tightening standards see mortgage delinquency rates fall by 3 percentage points two years later, and house prices, sales of newly-constructed homes, and residential construction employment decline by 2.5, 9, and 6.5 percent, respectively