Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/315966 
Year of Publication: 
2025
Series/Report no.: 
Working Paper No. 2025-3
Publisher: 
Federal Reserve Bank of Atlanta, Atlanta, GA
Abstract: 
In dynamic models of asset markets with asymmetric information and endogenous screening, the anticipation of signaling through delayed sales incentivizes originators to exert greater effort ex ante. A central prediction in those models is a positive relationship between screening effort and the delay of sale. We test this theoretical prediction using the mortgage market as a laboratory, with processing time serving as a measure of screening effort. In line with the theory, mortgage processing time and the delay of sale after origination are strongly positively related in the data. Both processing time and delay of sale are negatively related to conditional mortgage default, even though mortgages with higher ex ante credit risk are processed slower. This highlights the contrast between observable and unobservable risk and indicates that more screening effort leads to unobservably higher-quality loans that are also sold with a longer delay.
Subjects: 
processing time
screening
signaling
time to sale
securitization
mortgage loans
lending standards
JEL: 
G01
G21
G23
G32
R30
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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