Hostname: page-component-77c89778f8-swr86 Total loading time: 0 Render date: 2024-07-17T07:53:40.107Z Has data issue: false hasContentIssue false
  • English
  • Français

Labor Mobility and Loan Origination

Published online by Cambridge University Press:  11 May 2023

Sumit Agarwal Open the ORCID record for Sumit Agarwal [Opens in a new window] ,
Yupeng Lin ,
Yunqi Zhang  and
Zilong Zhang Open the ORCID record for Zilong Zhang [Opens in a new window]
Sumit Agarwal
Affiliation:
National University of Singapore Business School ushakri@yahoo.com
Yupeng Lin
Affiliation:
National University of Singapore Business School bizliny@nus.edu.sg
Yunqi Zhang
Affiliation:
Nankai University School of Finance zhangyunqi@u.nus.edu
Zilong Zhang*
Affiliation:
Zhejiang University School of Economics
*
zilzhang@zju.edu.cn (corresponding author)
Get access Rights & Permissions [Opens in a new window]

Abstract

We find that mortgage loans originated after the adoption of the inevitable disclosure doctrine (IDD; a mechanism discouraging loan officers’ labor mobility) have a lower default probability, a higher loan modification rate, and a lower foreclosure rate. These effects are unaccompanied by any reduction in loan supply and contribute to more stable housing prices. Using the adoption of the Uniform Trade Secrets Act as an alternative identification generates consistent results. Overall, our findings suggest that restricting loan officers’ labor mobility leads to better ex ante screening and ex post monitoring, improving the origination efficiency for U.S. residential mortgage loans.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , First View , pp. 1 - 34
Copyright
© The Author(s), 2023. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

The authorship is in alphabetical order, and the authors contributed equally. We thank Guodong Chen, Haoyu Gao, Jianwen Li, Yan Liu, Changcheng Song, and seminar participants at the 2018 AREUEA International Conference, 2021 AsRES-GCREC-AREUEA Joint Conference, and 2019 China Finance Annual Meeting for the helpful comments. We are grateful to Jarrad Harford (the editor) and the anonymous reviewer for their valuable comments and suggestions. This research is supported by the National Natural Science Foundation of China (Grant No. 72203112), the MOE (Ministry of Education in China) Project of Humanities and Social Sciences (Grant No. 20YJC790183), and Research Grants Council of Hong Kong (Grant No. 11503318). Lin acknowledges research support from the National University of Singapore and MOE Tier 1 Grant (Grant No. R-521-000-044-115).

References

360 Mortgage Group LLC v. Stonegate Mortgage Corporation and Lisa Glenn. No. A-13-CA-942-SS, Austin Division, Western District of Texas, United States District Court (2014).Google Scholar
Adelino, M.; Gerardi, K.; and Willen, P. S.. “Why Don’t Lenders Renegotiate More Home Mortgages? Redefaults, Self-Cures and Securitization.” Journal of Monetary Economics, 60 (2013), 835–853.CrossRefGoogle Scholar
Agarwal, S.; Amromin, G.; Ben-David, I.; Chomsisengphet, S.; and Evanoff, D. D.. “The Role of Securitization in Mortgage Renegotiation.” Journal of Financial Economics, 102 (2011), 559–578.CrossRefGoogle Scholar
Amel, D. F.; Kennickell, A. B.; and Moore, K. B.. “Banking Market Definition: Evidence from the Survey of Consumer Finances.” Finance and Economics Discussion Series 2008-35, Board of Governors of the Federal Reserve System (U.S.) (2008).CrossRefGoogle Scholar
American Equity Mortgage INC v. First Option Mortgage LLC . No. 4:06CV1167 CDP, Eastern Division, Eastern District of Missouri, United States District Court (2006).Google Scholar
Baker, A. C.; Larcker, D. F.; and Wang, C. C.. “How Much Should We Trust Staggered Difference-in-Differences Estimates?” Journal of Financial Economics, 144 (2022), 370–395.CrossRefGoogle Scholar
Behr, P.; Drexler, A.; Gropp, R.; and Guettler, A.. “Financial Incentives and Loan Officer Behavior: Multitasking and Allocation of Effort Under an Incomplete Contract.” Journal of Financial and Quantitative Analysis, 55 (2020), 1243–1267.CrossRefGoogle Scholar
Bertrand, M., and Mullainathan, S.. “Enjoying the Quiet Life? Corporate Governance and Managerial Preferences.” Journal of Political Economy, 111 (2003), 1043–1075.CrossRefGoogle Scholar
Campbell, J. Y.; Giglio, S.; and Pathak, P.. “Forced Sales and House Prices.” American Economic Review, 101 (2011), 2108–2131.CrossRefGoogle Scholar
de Chaisemartin, C., and D’Haultfœuille, X.. “Two-Way Fixed Effects Estimators with Heterogeneous Treatment Effects.” American Economic Review, 110 (2020), 2964–2996.CrossRefGoogle Scholar
Dambra, M., Even-Tov, O. and Naughton, J. P.. “The Economic Consequences of GASB Financial Statement Disclosure.” Journal of Accounting and Economics, 75 (2023), 101555.CrossRefGoogle Scholar
Drucker, S., and Puri, M.. “On the Benefits of Concurrent Lending and Underwriting.” Journal of Finance, 60 (2005), 2763–2799.CrossRefGoogle Scholar
Drucker, S., and Puri, M.. “On Loan Sales, Loan Contracting, and Lending Relationships.” Review of Financial Studies, 22 (2009), 2835–2872.CrossRefGoogle Scholar
Even-Tov, O., Li, X., Williams, C. D., and Wang, H.. “The Importance of Individual-Pair Lending Relationships.” Review of Accounting Studies, forthcoming (2023).CrossRefGoogle Scholar
Garmaise, M. J. “Ties that Truly Bind: Noncompetition Agreements, Executive Compensation, and Firm Investment.” Journal of Law, Economics, and Organization, 27 (2011), 376–425.CrossRefGoogle Scholar
Ghent, A. C., and Kudlyak, M.. “Recourse and Residential Mortgage Default: Evidence from U.S. States.” Review of Financial Studies, 24 (2011), 3139–3186.CrossRefGoogle Scholar
Gilson, R. J. “The Legal Infrastructure of High Technology Industrial Districts: Silicon Valley, Route 128, and Covenants Not to Compete.” New York University Law Review, 74 (1999), 575.Google Scholar
Goodman-Bacon, A. “Difference-in-Differences with Variation in Treatment Timing.” Journal of Econometrics, 225 (2021), 254–277.CrossRefGoogle Scholar
Grzelonska, P. “Benefits from Branch Networks: Theory and Evidence from the Summary of Deposits Data.” Working Paper, University of Minnesota (2005).Google Scholar
Holmes, T. J. “The Effect of State Policies on the Location of Manufacturing: Evidence from State Borders.” Journal of Political Economy, 106 (1998), 667–705.CrossRefGoogle Scholar
Immergluck, D., and Smith, G.. “The External Costs of Foreclosure: The Impact of Single‐Family Mortgage Foreclosures on Property Values.” Housing Policy Debate, 17 (2006), 57–79.CrossRefGoogle Scholar
Keys, B. J.; Mukherjee, T.; Seru, A.; and Vig, V.. “Did Securitization Lead to Lax Screening? Evidence from Subprime Loans.” Quarterly Journal of Economics, 125 (2010), 307–362.CrossRefGoogle Scholar
Khan, B. S. “Consumer Adoption of Online Banking: Does Distance Matter?” Working Paper, University of California Berkeley (2004).Google Scholar
Kini, O.; Williams, R.; and Yin, S.. “CEO Noncompete Agreements, Job Risk, and Compensation.” Review of Financial Studies, 34 (2021), 4701–4744.CrossRefGoogle Scholar
Klasa, S.; Ortiz-Molina, H.; Serfling, M.; and Srinivasan, S.. “Protection of Trade Secrets and Capital Structure Decisions.” Journal of Financial Economics, 128 (2018), 266–286.CrossRefGoogle Scholar
Levin, J., and Tadelis, S.. “Profit Sharing and the Role of Professional Partnerships.” Quarterly Journal of Economics, 110 (2005), 131–172.Google Scholar
Li, Y.; Lin, Y.; and Zhang, L.. “Trade Secrets Law and Corporate Disclosure: Causal Evidence on the Proprietary Cost Hypothesis.” Journal of Accounting Research, 56 (2018), 265–308.CrossRefGoogle Scholar
Lincoln Park Saving Bank v. Frank Binetti, Gerald Collins, Kimberly Gehrke, Donna Paler, Jeffrey Wheatley, and Larry Windel . No. 10 CV 5083, Eastern Division, Northern District of Illinois, United States District Court (2010).Google Scholar
Maturana, G. “When Are Modifications of Securitized Loans Beneficial to Investors?” Review of Financial Studies, 30 (2017), 3824–3857.CrossRefGoogle Scholar
Mayer, C.; Morrison, E.; and Piskorski, T.. “A New Proposal for Loan Modifications.” Yale Journal on Regulation, 26 (2009), 417.Google Scholar
Parlour, C. A., and Winton, A.. “Laying off Credit Risk: Loan Sales Versus Credit Default Swaps.” Journal of Financial Economics, 107 (2013), 25–45.CrossRefGoogle Scholar
Piskorski, T.; Seru, A.; and Vig, V.. “Securitization and Distressed Loan Renegotiation: Evidence from the Subprime Mortgage Crisis.” Journal of Financial Economics, 97 (2010), 369–397.CrossRefGoogle Scholar
Png, I. P. L. “Law and Innovation: Evidence from State Trade Secrets Laws.” Review of Economics and Statistics, 99 (2017), 167–179.CrossRefGoogle Scholar
Png, I. P. L., and Samila, S.. “Trade Secrets Law and Mobility: Evidence from ‘Inevitable Disclosure’.” Working Paper, available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1986775 (accessed on Dec, 2017) (2015).Google Scholar
Posner, E. A., and Zingales, L.. “A Loan Modification Approach to the Housing Crisis.” American Law and Economics Review, 11 (2009), 575–607.CrossRefGoogle Scholar
Quinto, D. W., and Singer, S. H.. Trade Secrets: Law and Practice. New York: Oxford University Press (2014).Google Scholar
Samila, S., and Sorenson, O.. “Noncompete Covenants: Incentives to Innovate or Impediments to Growth.” Management Science, 57 (2011), 425–438.CrossRefGoogle Scholar
Srinivasan, A. “Long Run Relationships in Banking.” Foundations and Trends in Finance, 8 (2014), 55–143.CrossRefGoogle Scholar
Tang, M. M.; Wang, R.; and Zhou, Y.. “Labor Market Mobility and Expectation Management: Evidence from Enforceability of Noncompete Provisions.” Contemporary Accounting Review, 38 (2020), 867–902.CrossRefGoogle Scholar
Tzioumis, K., and Gee, M.. “Nonlinear Incentives and Mortgage Officers’ Decisions.” Journal of Financial Economics, 107 (2013), 436–453.CrossRefGoogle Scholar
Williamson, O. E. The Mechanisms of Governance. New York, NY: Oxford University Press (1996).Google Scholar