Labor Mobility and Loan Origination

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.

Agarwal, Sumit and Lin, Yupeng and Zhang, Yunqi and Zhang, Zilong, Labor Mobility and Loan Origination (February 6, 2023). Journal of Financial and Quantitative Analysis, accepted, Available at SSRN: https://ssrn.com/abstract=3411350 or http://dx.doi.org/10.2139/ssrn.3411350