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This paper studies the role of workplace peers in the transmission of information pertinent to an important household financial decision: the mortgage refinancing choice. Exploiting commonalities in teaching schedules of school teachers in Texas to identify peer groups, we find that refinancing activity among teachers’ peers increases their likelihood of refinancing by 20.7%. The effect of peers increases with the potential savings realized upon refinancing and is stronger among younger teachers. Peers also affect teachers’ choice of lender. Overall, our findings suggest that peer interactions greatly reduce a household’s cost of acquiring and processing financial information. Received March 6, 2017; editorial decision July 31, 2018 by Editor Itay Goldstein. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

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This paper examines the relation between originators that misreported mortgages and house price movements. ZIP codes with high concentrations of misreporting originators experienced a 75% larger relative increase in house prices from 2003 to 2006 and a 90% larger relative decrease from 2007 to 2012 compared to other ZIPs. Using five causality related tests (an instrument for origination activity, an exogenous law change, timing between supply and price peaks, matching price trends, and effects in elastic ZIPs), we find that high fractions of bad originators in a ZIP result in larger price swings. In areas of elastic land supply, ZIPs with bad originators are associated with a building boom and a subsequent price bust that is much more severe than in similar ZIPs without bad originators. Originators with high misreporting seemed to have both given credit to borrowers of a higher stated risk and further understated the borrowers' true risk. Overall, our findings suggest that there are settings where questionable business practices can lead to large distortionary effects.

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