The Role of Intermediaries in Selection Markets: Evidence from Mortgage Lending

Jason Allen, Robert Clark, Jean-François Houde, Shaoteng Li and Anna Trubnikova

Staff Working Papers from Bank of Canada

Abstract: We study the role of brokers in selection markets. We find that broker-clients in the Canadian mortgage market are observationally different from branch-clients. They finance larger loans and have more leverage. We build and estimate a model of mortgage demand to disentangle three possible explanations for observed differences in product choice: (i) borrowers have observed preferences for riskier loans, (ii) borrowers have unobserved preferences for riskier loans, (iii) brokers steer borrowers towards riskier products. We find that brokers steer only about 15% of borrowers to mortgages with longer amortization, while borrowers’ own unobservable characteristics drive their decisions for greater leverage.

Keywords: Financial institutions; Financial services; Market structure and pricing (search for similar items in EconPapers)
JEL-codes: D D4 G G2 G21 L L2 (search for similar items in EconPapers)
Pages: 54 pages
Date: 2023-02
New Economics Papers: this item is included in nep-ban, nep-exp, nep-mon and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Working Paper: The Role of Intermediaries in Selection Markets: Evidence form Mortgage Lending (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:bca:bocawp:23-12

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