Households Rejecting Loan Offers from Banks

This paper studies a type of mortgage applications in which household applicants reject offers from lenders. We find that less risky applicants with lower loan size to income ratios are more likely to reject loan offers from lenders. Local lenders that operate in a market where they extend the majority of their loans are less likely to be rejected by applicants overall, but are more likely to be rejected by risky applicants specifically. We also find that lenders that are less likely to be rejected by applicants tend to have higher loan acceptance rates and be more active in the jumbo mortgages segment, indicating an information advantage of those banks over the others. The paper adds to the literature by showing that the information advantage of geographically concentrated lenders enables them to have lower probabilities of being denied by applicants, and it also provides a new perspective to look at the relationship between loan borrowers and lenders