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The effect of mortgage broker licensing under the originate-to-distribute model: Evidence from the U.S. mortgage market

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  • Shi, Lan
  • Zhang, Yan

Abstract

By exploiting state-level variations in mortgage broker licensing regulations, we examine how licensing requirements affect mortgage loan performances and the mortgage origination market. Using data on private label securitized loans, we find that loans in states with a toughened broker licensing had a smaller increase in default rates. This effect is larger in the years leading up to the financial crisis, for borrowers with lower credit scores, cash-out-refinance loans, high-minority neighborhoods, and loans originated by nonbanks. The improved performance with toughened broker licensing is only partially reflected in loan pricing. Stronger broker licensing requirements have slightly positive effects on the mortgage approval rates, and are associated with overall less risky borrowers and loan characteristics in applications and in originations.

Suggested Citation

  • Shi, Lan & Zhang, Yan, 2018. "The effect of mortgage broker licensing under the originate-to-distribute model: Evidence from the U.S. mortgage market," Journal of Financial Intermediation, Elsevier, vol. 35(PA), pages 70-85.
    • Handle: RePEc:eee:jfinin:v:35:y:2018:i:pa:p:70-85
    DOI: 10.1016/j.jfi.2018.03.006
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    Cited by:

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    2. Sumit Agarwal & Swee Hoon Ang & Yongheng Deng & Yonglin Wang, 2021. "Mortgage Brokers and the Effectiveness of Regulatory Oversights," Management Science, INFORMS, vol. 67(8), pages 5278-5300, August.

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    More about this item

    Keywords

    Mortgage; Securitization; Originate-to-distribute; Brokers; Information asymmetry; Moral hazard; Incentives; Occupational licensing;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • J44 - Labor and Demographic Economics - - Particular Labor Markets - - - Professional Labor Markets and Occupations
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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