The impact of mortgage broker use on borrower confusion and preferences

We examine how mortgage brokers affect borrower confusion about key mortgage features and assess whether brokers mitigate confusion by educating borrowers. Drawing from two lab-in-the-field experiments, we first show a correlation between the attributes borrowers find most confusing and those they find least important. Second, we show that borrowers who secure loans directly from lenders demonstrate lower confusion levels compared to those using brokers, even after accounting for self-selection bias. Despite this, broker users exhibit higher decision satisfaction and confidence after taking a loan. Third, using responses from discrete choice experiments to implement a causal mediation analysis with a single IV, we evaluate the influence of broker use, financial literacy, and subjective confusion on borrowers’ willingness to pay for specific mortgage attributes. Our findings reveal that broker users are willing to pay more for attributes that increase the value and duration of loans, increasing broker commissions.