The Role of Mortgage Brokers in the Subprime Crisis
Prior to the subprime crisis, mortgage brokers originated about 65% of all subprime mortgages. Yet little is known about their behavior during the runup to the crisis. Using data from New Century Financial Corporation, we find that brokers earned an average revenue of $5,300 per funded loan. We decompose the broker revenues into a cost and a profit component and find evidence consistent with brokers having market power. The profits earned are different for different types of loans and vary with borrower, broker, regulation and neighborhood characteristics. We relate the broker profits to the subsequent performance of the loans and show that brokers earned high profits on loans that turned out to be riskier ex post.
|Date of creation:||Jul 2010|
|Date of revision:|
|Publication status:||published as The Role of Mortgage Brokers in the Subprime Crisis , Antje Berndt, Burton Hollifield, Patrik Sandås. in Market Institutions and Financial Market Risk , Carey, Kashyap, Rajan, and Stulz. 2012|
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- Souphala Chomsisengphet & Anthony Pennington-Cross, 2006.
"Subprime refinancing: equity extraction and mortgage termination,"
2006-023, Federal Reserve Bank of St. Louis.
- Anthony Pennington-Cross & Souphala Chomsisengphet, 2007. "Subprime Refinancing: Equity Extraction and Mortgage Termination," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 35(2), pages 233-263, 06.
- Pennington-Cross, Anthony, 2003. "Credit History and the Performance of Prime and Nonprime Mortgages," The Journal of Real Estate Finance and Economics, Springer, vol. 27(3), pages 279-301, November.
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