The importance of lender heterogeneity in mortgage lending

Previous studies of the mortgage lending process, which fail to adequately account for inter-lender differences, suffer from a potentially serious omi tted-variables bias. Using a sample of 23,094 home purchase mortgage applic ations from Pinellas County (St. Petersburg) Florida, over the 1993-1995 in terval, I demonstrate that the inclusion of lender characteristics enhances the predictive power of accept/reject decision models of mortgage originat ion. In addition, the inclusion of lender attributes is shown to substantia lly influence the coefficient estimates of additional model parameters of i nterest, such as the applicant race and neighborhood racial composition var iables. Finally, this study provides unique and supportive evidence regardi ng the existence and persistence of information externalities in home purch ase mortgage markets, (C) 2000 Academic Press.