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Mortgage Broker Regulations That Matter: Analyzing Earnings, Employment, and Outcomes for Consumers

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  • Morris M. Kleiner
  • Richard M. Todd

Abstract

As the role of mortgage brokers in mortgage origination grew from insignificant in the 1980s to dominant in recent years, questions have arisen about whether its services help or harm consumers. In response, states have increasingly regulated the business, largely by creating and tightening occupational licensing requirements for mortgage brokers. The question of whether increased occupational licensing of mortgage brokers improves consumer outcomes is theoretically ambiguous and has been little studied empirically. This study introduces a new database of mortgage broker licensing requirements and assesses the relationships between these requirements and outcomes in both the labor market for brokers and the consumer market for mortgages. We find that one typical regulation--the requirement in many states that mortgage brokers maintain a surety bond or minimum net worth--has a significant and fairly consistent statistical relationship with both labor and consumer market outcomes. In particular, we find that tighter bonding/net worth requirements are associated with slightly higher broker earnings, fewer brokers, fewer subprime mortgages, higher foreclosure rates, and a greater percentage of high-interest-rate mortgages. Although we do not provide a full causal interpretation of these results, we take seriously the possibility that restrictive bonding requirements for mortgage brokers have unintended negative consequences for many consumers. On balance, our results also seem to support the relevance of theories of occupational licensing that stress the importance of financial entry and exit barriers.

Suggested Citation

  • 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.
  • Handle: RePEc:nbr:nberwo:13684
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    References listed on IDEAS

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    Cited by:

    1. Francisca Richter, 2008. "An analysis of foreclosure rate differentials in soft markets," Working Papers (Old Series) 0811, Federal Reserve Bank of Cleveland.
    2. Kyle Rozema, 2021. "Does the Bar Exam Protect the Public?," Journal of Empirical Legal Studies, John Wiley & Sons, vol. 18(4), pages 801-848, December.
    3. 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.
    4. Keys, Benjamin J. & Mukherjee, Tanmoy & Seru, Amit & Vig, Vikrant, 2009. "Financial regulation and securitization: Evidence from subprime loans," Journal of Monetary Economics, Elsevier, vol. 56(5), pages 700-720, July.
    5. E. Frank Stephenson & Erin E. Wendt, 2009. "Occupational Licensing: Scant Treatment in Labor Texts," Econ Journal Watch, Econ Journal Watch, vol. 6(2), pages 181-194, May.
    6. 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.
    7. Dick M. Carpenter II & Lisa Knepper & Angela C. Erickson & John K. Ross, 2015. "Regulating Work: Measuring the Scope and Burden of Occupational Licensure Among Low- and Moderate-Income Occupations in the United States," Economic Affairs, Wiley Blackwell, vol. 35(1), pages 3-20, February.

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    More about this item

    JEL classification:

    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • J18 - Labor and Demographic Economics - - Demographic Economics - - - Public Policy
    • J4 - Labor and Demographic Economics - - Particular Labor Markets
    • J44 - Labor and Demographic Economics - - Particular Labor Markets - - - Professional Labor Markets and Occupations
    • J8 - Labor and Demographic Economics - - Labor Standards
    • K2 - Law and Economics - - Regulation and Business Law
    • K31 - Law and Economics - - Other Substantive Areas of Law - - - Labor Law
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L38 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Public Policy
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L84 - Industrial Organization - - Industry Studies: Services - - - Personal, Professional, and Business Services

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