The Pricing of Mortgages by Brokers: An Agency Problem?
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.
Volume (Year): 31 (2009)
Issue (Month): 2 ()
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References listed on IDEAS
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- 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.
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- 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)
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