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How Subprime Borrowers and Mortgage Brokers Shared the Pie

Author

Listed:
  • Berndt, Antje

    (Poole College of Management)

  • Hollifield, Burton

    (Tepper School of Business)

  • Sandås, Patrik

    (McIntire School of Commerce)

Abstract

We develop an equilibrium model for origination fees charged by mortgage bro- kers and show how the equilibrium fee distribution depends on borrowers' valua- tion for their loans and their information about fees. We use non-crossing quantile regressions and data from a large subprime lender to estimate conditional fee dis- tributions. Given the fee distribution, we identify the distributions of borrower valuations and informedness. The level of informedness is higher for larger loans and in better educated neighborhoods. We quantify the fraction of the surplus from the mortgage that goes to the broker, and how it decreases as the borrower becomes more informed.

Suggested Citation

  • Berndt, Antje & Hollifield, Burton & Sandås, Patrik, 2014. "How Subprime Borrowers and Mortgage Brokers Shared the Pie," Working Paper Series 286, Sveriges Riksbank (Central Bank of Sweden).
    • Handle: RePEc:hhs:rbnkwp:0286
    as

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    File URL: http://www.riksbank.se/Documents/Rapporter/Working_papers/2014/rap_wp286_140909.pdf
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    References listed on IDEAS

    as
    1. Howard D. Bondell & Brian J. Reich & Huixia Wang, 2010. "Noncrossing quantile regression curve estimation," Biometrika, Biometrika Trust, vol. 97(4), pages 825-838.
    2. Engel, Kathleen C. & McCoy, Patricia A., 2011. "The Subprime Virus: Reckless Credit, Regulatory Failure, and Next Steps," OUP Catalogue, Oxford University Press, number 9780195388824.
    3. William D. Larson, 2010. "Evaluating Alternative Methods of Forecasting House Prices: A Post-Crisis Reassessment," Working Papers 2010-004, The George Washington University, Department of Economics, H. O. Stekler Research Program on Forecasting, revised Feb 2011.
    4. Brent W. Ambrose & James N. Conklin, 2014. "Mortgage Brokers, Origination Fees, Price Transparency and Competition," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 42(2), pages 363-421, June.
    5. Koenker, Roger & Ng, Pin, 2003. "SparseM: A Sparse Matrix Package for R ," Journal of Statistical Software, Foundation for Open Access Statistics, vol. 8(i06).
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Mortgage broker compensation; Borrower Valuation; Borrower Informedness;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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    This paper has been announced in the following NEP Reports:

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