Scandinavian Working Papers in Economics

Working Paper Series,
Sveriges Riksbank (Central Bank of Sweden)

No 286: How Subprime Borrowers and Mortgage Brokers Shared the Pie

Antje Berndt (), Burton Hollifield () and Patrik Sandås ()
Additional contact information
Antje Berndt: Poole College of Management, Postal: North Carolina State University, Raleigh, NC, 27695
Burton Hollifield: Tepper School of Business, Postal: Carnegie Mellon University, Pittsburgh, PA, 15213
Patrik Sandås: McIntire School of Commerce, Postal: University of Virginia, Charlottesville, VA, 22904

Abstract: We develop an equilibrium model for origination fees charged by mortgage bro- kers and show how the equilibrium fee distribution depends on borrowers' valua- tion for their loans and their information about fees. We use non-crossing quantile regressions and data from a large subprime lender to estimate conditional fee dis- tributions. Given the fee distribution, we identify the distributions of borrower valuations and informedness. The level of informedness is higher for larger loans and in better educated neighborhoods. We quantify the fraction of the surplus from the mortgage that goes to the broker, and how it decreases as the borrower becomes more informed.

Keywords: Mortgage broker compensation; Borrower Valuation; Borrower Informedness

JEL-codes: G21

82 pages, July 1, 2014

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rap_wp286_140909.pdf PDF-file 

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