Authors: Christos Tsoumas

Title: Mortgage Loan Demand and Bank Efficiency

Abstract

This paper explores the impact of mortgage loan demand on U.S. commercial banks’ cost and profit efficiency during the 1996-2016 period. For our empirical analysis, we use data from two main sources: First, end-of-year commercial bank-level data from the 031/041 Call Reports for the estimation of bank cost and profit efficiency. Second, applicant-level data on mortgage applications from the HMDA files for the estimation of mortgage loan demand-related variables for each commercial bank-year. Using the data from the call reports, we estimate the cost and profit efficiency of commercial banks using a multi-product translog function. In our analysis we use both accepted and denied loans as a first attempt to distinguish between loan demand and loan supply. We construct a series of the average value of mortgage loan demanded per bank for each commercial bank over the 1996-2016 period. In addition, we also calculate the total number of mortgage loan applications (both accepted and denied) for each bank-year; and the ratio of accepted mortgage loan applications to the total number of applications for each bank. Our tentative results show that mortgage loan demand positively affects bank’s cost efficiency, whereas it negatively impacts profit efficiency.