A Mortgage Deal Is More Than Its Rate

For completed U.S. bank mergers, a stable mortgage rate would not by itself prove that borrowers were unaffected. A lender could keep prices broadly unchanged while approving fewer applications, serving a different mix of applicants, or originating loans that perform worse later. This chapter examines the Federal Reserve study’s two other borrower-facing tests—approval rates and subsequent delinquency—so the judgment about merger effects covers access and loan quality as well as price.

The distinction also protects against a different version of the same mistake. Just as a raw rate average can change because two portfolios were combined, a raw approval average can move because the applicants or products changed. And a higher delinquency rate in one post-merger period may reflect local economic conditions or a small sample rather than a new underwriting policy. The relevant question remains comparative: did the merging institution diverge from comparable lenders in the same market after completion?

Approval is an access measure, not a complete credit-supply measure

An approval rate is the share of mortgage applications that a lender approves. It gives a direct view of one decision point: whether an application cleared the lender’s process. It does not measure every way households obtain or lose credit. A borrower may apply to another lender, seek a different product, borrow a different amount, or never apply because a branch closed or the lender became less visible. Approval is therefore important, but it is a proxy for access rather than a complete measure of credit supply.

The raw approval patterns differ across the study’s merger types. In community–community mergers, target banks approve about 89 percent of applications before completion, compared with about 87 percent for acquiring and control banks. After the merger, the target-side rate moves toward roughly 87 percent, the acquirer’s pre-merger level, while controls remain stable. On its face, that looks like the target adopted a somewhat stricter standard. But the movement could also reflect a change in the kinds of borrowers or loans appearing under the combined institution.

Large-bank acquisitions of community banks show a larger-looking convergence. Before completion, large-bank acquirers approve about 82 percent of applications, community targets about 78 percent, and controls about 87 percent. After completion, the acquiring institution’s approval rate falls toward approximately 78 percent, close to the target’s earlier level, while control banks remain around 87 percent. A simple before-and-after reading might describe this as a large bank tightening access after acquiring a local bank. The pattern is compatible with that possibility, but it does not establish it. The target and acquirer may have served different applicant pools, and the merged institution may have changed the mix of applications it originated.

In large–large mergers, the pre-merger approval rates of acquirers and targets are around 76–77 percent, while controls are closer to 86 percent. Post-merger approval rates at acquiring banks remain near 75 percent. The gap between merging institutions and controls is substantial as a level difference, but there is little evidence of a new post-merger movement. The starting gap could reflect underwriting culture, borrower composition, product mix, or other persistent differences between the large institutions and the controls.