Do Mortgage Lenders Compete Locally? Implications for Credit Access

We study the impact of mortgage lender concentration on household credit access. An extensive literature has found little to no relationship between local lender concentration and mortgage interest rates; consequently, federal regulators regard mortgage markets as national and view their local concentration as irrelevant to financial regulation and monetary policy. We argue that this view is incomplete, showing that although local concentration has no influence on interest rates, it strongly affects lending standards and upfront fees. In more concentrated areas, mortgage application rejection rates are higher (this effect is particularly pronounced for low-income, female, and racial-minority applicants), and the pool of originated mortgages is less risky in terms of both ex-ante credit scores and ex-post default. On the intensive margin, lenders charge higher fees in more concentrated markets: non-interest fees are on average 35 basis points higher in the 10% most concentrated markets than in the 10% least concentrated markets. Again, these effects are strongest among minority applicants. Our findings suggest that contrary to current policy, regulators concerned with credit access should regard mortgage markets as local when making policy decisions such as bank merger approvals.