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          Be sure to check the weather before applying for a loan!

We know that weather can affect your mood. But can it make the difference between a loan approval and a denial? Yes, according to research conducted at the University of Washington.

Ran Duchin, associate professor of finance at the UW Foster School of Business, wanted to understand whether we make different decisions at work depending on our mood, so he and other researchers on his team decided to look at mortgage applications, according to a story by Ashley Gross of Radio Station KPIU in Tacoma, WA.

“We sort of know from psychology that when it’s cloudy, people tend to be less happy than when it’s sunny,” Duchin said. “You can get that data at an hourly level across all weather stations in the U.S. You just get in on-line.”

They ignored applications from people who were clearly bad candidates for a loan because of low credit scores or spotty employment histories. They also ignored applications from people with very high scores that would easily be approved. Instead, they focused on the ones that were marginal – subject to a judgment call by the underwriter. They then examined the weather conditions at the time the decision was made.

Turns out that underwriters were more likely to approve those marginal loans on unexpectedly sunny days and reject more of them on unexpectedly cloudy days.

“The cool thing about this data is that for all the applications that are approved, we could actually trace the performance of those loans after they’re approved,” Duchin was quoted as saying. Those marginal loans approved on unexpectedly sunny days were more likely to default than the ones approved on cloudy days.

“Our data shows that an unexpectedly beautiful day outside can influence how we make decisions at work. Specifically, it can leads people to be more careless,” Duchin said. “The real question is to what extent we should automate some of the decision-making process in financial firms…to avoid this sort of human factor, these mistakes.”

Another alternative he proposed, sure to be a non-starter with anyone employed in the lending business, is to impose financial penalties on employees whose loans end up in default. “That could serve as a disincentive so that mortgage loan officers (underwriters) would use more caution, no matter what the weather is like outside.”

I would inform Duchin that mortgage underwriters are generally underpaid, overworked, and subject to intense pressure. Any suggestion to hit them in the pocketbook for loan defaults completely beyond their control would lead to a massive walkout, as underwriters flee for less stressful work, like dismantling bombs.

Whether or not Duchin’s findings are reliable, I plan to henceforth send all of my loan applications to underwriters located in San Diego or Phoenix. Sorry, Seattle, but I can’t afford to take a chance.

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