IDEAS home Printed from https://ideas.repec.org/a/jre/issued/v31n22009p235-264.html
   My bibliography  Save this article

The Pricing of Mortgages by Brokers: An Agency Problem?

Author

Listed:
  • Michael LaCour-Little

    (California State University, Fullerton Fullerton, CA 92831)

Abstract

Mortgage brokers have grown in importance in the home mortgage origination process in recent years suggesting they provide a valuable service matching borrowers and lenders, although their involvement has also been linked to the recent surge in mortgage defaults and foreclosures. As in other markets dominated by brokers, agents' incentives are often poorly aligned with those with whom they do business, in this case both the lenders who bear the risks once the loan is originated and the consumer who assumes liability for the debt and contract terms. In this paper, we describe the institutional arrangements under which mortgage brokers operate and empirically test whether loans originated by mortgage brokers are lower in cost than those that would be available directly from retail lenders. Results suggest loans originated by brokers cost borrowers about 20 basis points more, on average, than retail loans and that this premium is higher for lower-income and lower credit score borrowers.

Suggested Citation

  • Michael LaCour-Little, 2009. "The Pricing of Mortgages by Brokers: An Agency Problem?," Journal of Real Estate Research, American Real Estate Society, vol. 31(2), pages 235-264.
    • Handle: RePEc:jre:issued:v:31:n:2:2009:p:235-264
    as

    Download full text from publisher

    File URL: http://pages.jh.edu/jrer/papers/pdf/past/vol31n02/06.235_264.pdf
    File Function: Full text
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Michael LaCour-Little & Gregory H. Chun, 1999. "Third Party Originators and Mortgage Prepayment Risk: An Agency Problem?," Journal of Real Estate Research, American Real Estate Society, vol. 17(1), pages 55-70.
    2. Michael LaCour-Little, 2007. "The Home Purchase Mortgage Preferences of Low- and Moderate-Income Households," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 35(3), pages 265-290, September.
    3. Lisa L. Posey & Abdullah Yavas, 2007. "Screening equilibria in experimental markets," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 32(2), pages 147-167, December.
    4. Morris M. Kleiner & Richard M. Todd, 2009. "Mortgage Broker Regulations That Matter: Analyzing Earnings, Employment, and Outcomes for Consumers," NBER Chapters, in: Studies of Labor Market Intermediation, pages 183-231, National Bureau of Economic Research, Inc.
    5. R.C. Rutherford & T.M. Springer & A. Yavas, 2004. "The Impacts of Contract Type on Broker Performance: Submarket Effects," Journal of Real Estate Research, American Real Estate Society, vol. 26(3), pages 277-298.
    6. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 31(3), pages 129-137.
    7. Marsha J. Courchane, 2007. "The Pricing of Home Mortgage Loans to Minority Borrowers: How Much of the APR Differential Can We Explain?," Journal of Real Estate Research, American Real Estate Society, vol. 29(4), pages 399-440.
    8. Yavas, Abdullah, 1992. "Marketmakers versus matchmakers," Journal of Financial Intermediation, Elsevier, vol. 2(1), pages 33-58, March.
    9. Morris M. Kleiner & Richard M. Todd, 2007. "Mortgage Broker Regulations That Matter: Analyzing Earnings, Employment, and Outcomes for Consumers," NBER Working Papers 13684, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Jason Allen & Robert Clark & Jean-François Houde & Shaoteng Li & Anna V. Trubnikova, 2023. "The Role of Intermediaries in Selection Markets: Evidence form Mortgage Lending," NBER Working Papers 31989, National Bureau of Economic Research, Inc.
    2. Antje Berndt & Burton Hollifield & Patrik Sandås, 2010. "The Role of Mortgage Brokers in the Subprime Crisis," NBER Working Papers 16175, National Bureau of Economic Research, Inc.
    3. Alla Koblyakova & Michael White, 2017. "Supply driven mortgage choice," Urban Studies, Urban Studies Journal Limited, vol. 54(5), pages 1194-1210, April.
    4. Marsha Courchane & Rajeev Darolia & Peter Zorn, 2012. "Broker Compensation Patterns and Trends: 2005–2009," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 40(3), pages 229-251, September.
    5. Antje Berndt & Burton Hollifield & Patrik Sandås, 2021. "What Broker Charges Reveal About Subprime Mortgage Credit Risk," The Journal of Real Estate Finance and Economics, Springer, vol. 63(2), pages 280-326, August.
    6. 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.
    7. 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.
    8. Hany Guirguis & Glenn R. Mueller & Joshua Harris & Andrew G. Mueller, 2017. "Did Increased Large Bank Concentration of US Mortgage Loan Originations Explain Rising Originator Profits?," International Real Estate Review, Global Social Science Institute, vol. 20(3), pages 325-348.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Jonathan Spader & Roberto Quercia, 2011. "Mortgage Brokers and the Refinancing Transaction: Evidence from CRA Borrowers," The Journal of Real Estate Finance and Economics, Springer, vol. 42(2), pages 181-210, February.
    2. 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.
    3. Yan Zhang, 2013. "Fair Lending Analysis of Mortgage Pricing: Does Underwriting Matter?," The Journal of Real Estate Finance and Economics, Springer, vol. 46(1), pages 131-151, January.
    4. Evgeniy M. Ozhegov, 2014. "The Underwriting, Choice And Performance Of Government-Insured Mortgages In Russia," HSE Working papers WP BRP 31/FE/2014, National Research University Higher School of Economics.
    5. Evgeniy Ozhegov, 2015. "Identification in a class of nonparametric simultaneous equation models with sample selection (in Russian)," Quantile, Quantile, issue 13, pages 15-23, May.
    6. Han, Lu & Strange, William C., 2015. "The Microstructure of Housing Markets," Handbook of Regional and Urban Economics, in: Gilles Duranton & J. V. Henderson & William C. Strange (ed.), Handbook of Regional and Urban Economics, edition 1, volume 5, chapter 0, pages 813-886, Elsevier.
    7. Francisca Richter, 2008. "An analysis of foreclosure rate differentials in soft markets," Working Papers (Old Series) 0811, Federal Reserve Bank of Cleveland.
    8. Darima Fotheringham & Michael A. Wiles, 2023. "The effect of implementing chatbot customer service on stock returns: an event study analysis," Journal of the Academy of Marketing Science, Springer, vol. 51(4), pages 802-822, July.
    9. Song, Wei-Ling & Uzmanoglu, Cihan, 2016. "TARP announcement, bank health, and borrowers’ credit risk," Journal of Financial Stability, Elsevier, vol. 22(C), pages 22-32.
    10. Raymundo M. Campos-Vázquez, 2013. "Efectos de los ingresos no reportados en el nivel y tendencia de la pobreza laboral en México," Ensayos Revista de Economia, Universidad Autonoma de Nuevo Leon, Facultad de Economia, vol. 0(2), pages 23-54, November.
    11. Stephen Brown & William Goetzmann & Bing Liang & Christopher Schwarz, 2008. "Mandatory Disclosure and Operational Risk: Evidence from Hedge Fund Registration," Journal of Finance, American Finance Association, vol. 63(6), pages 2785-2815, December.
    12. Paul W. Miller & Barry R. Chiswick, 2002. "Immigrant earnings: Language skills, linguistic concentrations and the business cycle," Journal of Population Economics, Springer;European Society for Population Economics, vol. 15(1), pages 31-57.
    13. Chul‐Woo Kwon & Peter F. Orazem & Daniel M. Otto, 2006. "Off‐farm labor supply responses to permanent and transitory farm income," Agricultural Economics, International Association of Agricultural Economists, vol. 34(1), pages 59-67, January.
    14. Jonathan Gruber & Aaron Yelowitz, 1999. "Public Health Insurance and Private Savings," Journal of Political Economy, University of Chicago Press, vol. 107(6), pages 1249-1274, December.
    15. Jean-Louis Arcand & Linguère M'Baye, 2013. "Braving the waves: the role of time and risk preferences in illegal migration from Senegal," CERDI Working papers halshs-00855937, HAL.
    16. Sandra Müllbacher & Wolfgang Nagl, 2017. "Labour supply in Austria: an assessment of recent developments and the effects of a tax reform," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 44(3), pages 465-486, August.
    17. Campbell, Randall C. & Nagel, Gregory L., 2016. "Private information and limitations of Heckman's estimator in banking and corporate finance research," Journal of Empirical Finance, Elsevier, vol. 37(C), pages 186-195.
    18. Leye Li & Louise Yi Lu & Dongyue Wang, 2022. "External labour market competitions and stock price crash risk: evidence from exposures to competitor CEOs’ award‐winning events," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 62(S1), pages 1421-1460, April.
    19. Jože P. Damijan & Mark Knell, 2005. "How Important Is Trade and Foreign Ownership in Closing the Technology Gap? Evidence from Estonia and Slovenia," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 141(2), pages 271-295, July.
    20. Calcagno, R. & Renneboog, L.D.R., 2004. "Capital Structure and Managerial Compensation : The Effects of Renumeration Seniority," Discussion Paper 2004-120, Tilburg University, Center for Economic Research.

    More about this item

    JEL classification:

    • L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:jre:issued:v:31:n:2:2009:p:235-264. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: JRER Graduate Assistant/Webmaster (email available below). General contact details of provider: http://www.aresnet.org/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.