The Role of Mortgage Brokers in the Subprime Crisis
AbstractPrior to the subprime crisis, mortgage brokers originated about 65% of all subprime mortgages. Yet little is known about their behavior during the runup to the crisis. Using data from New Century Financial Corporation, we find that brokers earned an average revenue of $5,300 per funded loan. We decompose the broker revenues into a cost and a profit component and find evidence consistent with brokers having market power. The profits earned are different for different types of loans and vary with borrower, broker, regulation and neighborhood characteristics. We relate the broker profits to the subsequent performance of the loans and show that brokers earned high profits on loans that turned out to be riskier ex post.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 16175.
Date of creation: Jul 2010
Date of revision:
Publication status: published as Antje Berndt, Burton Holliﬁeld, Patrik Sandås. "The Role of Mortgage Brokers in the Subprime Crisis," in Mark Carey, Anil Kashyap, Raghuram Rajan, and René Stulz, organizers, "Market Institutions and Financial Market Risk" Elsevier, Journal of Financial Economics (2012)
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Find related papers by JEL classification:
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
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NBER Working Papers
17315, National Bureau of Economic Research, Inc.
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