Abstract
This study examines the effects of pipeline hazards on credit risk using evidence from the 2005–2011 home mortgage loans in Texas. Difference-indifference analyses show a permanently lower origination rate by 1.9% in the pipeline-present areas compared to the pipeline-free areas, which was further enlarged by 1.8% whenever pipeline incidents happened. Evidence suggests that the permanent difference in credit access reflects lenders’ concerns about collateral value and borrowers’ repayment ability. The elevated post-incident risk perceptions indicate lenders’ aversion to environmental liabilities. Lenders’ risk management strategies differed by borrowers’ income and evolved with the tightening of the securitization market.
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