Mortgage, Monitoring, and (Non-complying) Mandatory Flood Insurance

Prof. Zhongchen HU, Assistant Professor, Chinese University of Hong Kong (Shenzhen)


Date: 14 September 2022 (Wednesday)
Time: 3:00pm – 4:00pm
Venue: Online via Zoom
Host: Prof. Endong YANG, Assistant Professor of Finance
Zoom Link: https://umac.zoom.us/j/94257336217


In the US, many mortgage borrowers are required by law to maintain flood insurance. However, lapsed policies can impose high monitoring costs on lenders, leading to unintended effects. Exploiting an exogenous premium rise ($266 per year) that weakens borrowers’ ex-post compliance incentives, I show that lenders increase mortgage denial rates by 0.8 percentage points (3.13% of the mean). This effect is gigantic, 80 times larger than that of lowering one’s annual income by $266. Moreover, I rule out alternative demand-side explanations and provide a set of evidence to support the mechanism that lenders restrict credit supply ex-ante when facing ex-post monitoring costs.



Prof. Zhongchen HU is the Assistant Professor in Finance in Chinese University of Hong Kong (Shenzhen). He received his Ph.D from London School of Economics in 2021. His research areas are Corporate Finance, Household Finance, Venture Capital, Entrepreneurship, Labor Economics, Climate Finance. His works have appeared in major journals including the Journal of Financial Economics and the Review of Financial Studies.


All are welcome!