Genuine question is that more to do with the regional bank knowing the market or more to do with JPMorgan Chase having more stringent regulatory requirements and controls? Maybe a little of both?
MegaBanks have automated procedures which are more about automated bureaucracy than regulations.
If Computer Says No, nothing is happening. But Computer lacks any sense of context or local variation. By definition decisions are based on national stats which average a lot of behaviour.
Smaller banks have people - who are probably experts - making contextual loan decisions. Someone's good character and work ethic - or lack of - is going to influence the decision.
This doesn't make decisions infallible, but it's the difference between small-focus rigid decision making, and broad-focus community-dependent decision making.
It's also why so many people are caught in the rental trap. Many of them are perfectly able to afford a mortgage, but they don't match the bureaucratic criteria on some relatively minor point, and so Computer Says No.
It's also why credit scoring is so slanted. I have a perfect payment record, but no loan history because it's more than six years since I paid off all my debts. If I apply for a credit card I'll be marked down because I don't have a large existing credit limit.
This is deliberate policy, because lenders don't want people like me who will pay off the balance in full every month. They want borrowers who won't. This prioritises immediate profitability - until the loan book blows up with a wave of defaults during a recession, because these borrowers are inherently riskier.
Both. It isn't worth JP Morgan's time to understand the different neighborhoods in Boston. Their computer model is their computer model. But think about where you live. I'm sure you can tell me that certain streets are desirable and certain streets much less so. Maybe there is a block nearby with particularly nice foliage that makes it look good. Information that you wouldn't know by looking at a map. A regional lender might be tuned-in to things like that in a way that a megabank won't be, because it's not worth their time to get to know each and every neighborhood.
Seems more like a long-tail thing... mega banks take all the standard things that can be bundled into megasecurities, let someone else worry about all the things that don't fit into a standard box.
