Advertising Expensive Mortgages

Umit G. Gurun · Gregor Matvos · Amit Seru

222 citations0/0 files storedThe Journal of Finance

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Housing Market and Economics Banking stability, regulation, efficiency Financial Literacy, Pension, Retirement Analysis

Abstract

ABSTRACT Using information on advertising and mortgages originated by subprime lenders, we study whether advertising helped consumers find cheaper mortgages. Lenders that advertise more within a region sell more expensive mortgages, measured as the excess rate of a mortgage after accounting for borrower, contract, and regional characteristics. These effects are stronger for mortgages sold to less sophisticated consumers. We exploit regional variation in mortgage advertising induced by the entry of Craigslist and other tests to demonstrate that these findings are not spurious. Analyzing advertising content reveals that initial/introductory rates are frequently advertised in a salient fashion, where reset rates are not.

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References

2008Nudge: improving decisions about health, wealth, and happiness 1974Advertising as Information 2009Psychology and Economics: Evidence from the Field 2003Limited attention, information disclosure, and financial reporting 2009The Consequences of Mortgage Credit Expansion: Evidence from the U.S. Mortgage Default Crisis *2006Shrouded Attributes, Consumer Myopia, and Information Suppression in Competitive Markets 2006Paying Not to Go to the Gym 2010Did Securitization Lead to Lax Screening? Evidence from Subprime Loans*

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