Lending Next to the Courthouse: Exposure to Adverse Events and Mortgage Lending Decisions

Abstract Adverse market events can affect credit supply not only by hurting financial fundamentals but also changing the risk-taking behaviors of individual decision-makers. We provide micro-level evidence this decision-making channel in U.S. mortgage market. find that application rejection rates are more sensitive to foreclosure intensity when loan officers exposed news, despite same housing and bank fundamentals. Loans originated from affected branches have lower ex post default rates, consistent with higher lending standards being applied. In aggregate, effect results tighter during downturns.