The Cost of Steering in Financial Markets: Evidence from the Mortgage Market

Andrea Pozzi, Paolo Emilio Mistrulli, Luigi Guiso, Anton Tsoy and Leonardo Gambacorta

No 12115, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We build a model of the mortgage market where banks attain their optimal mortgage portfolio by setting rates and steering customers. “Sophisticated†households know which mortgage type is best for them; “naive†are susceptible to bank’s steering. Using data on the universe of Italian mortgages, we estimate the model and quantify the welfare implications of steering. The average cost of the distortion is equivalent to 19% of the annual mortgage payment. Since steering also conveys information about mortgages, restricting steering results in a 4% loss. A financial literacy campaign is beneficial for naive households, but hurts sophisticated ones.

Keywords: Steering; Financial advice; Mortgage market; Consumer protection (search for similar items in EconPapers)
JEL-codes: D12 D18 G21 (search for similar items in EconPapers)
Date: 2018-09
New Economics Papers: this item is included in nep-eur and nep-fle
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

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Related works:
Journal Article: The cost of steering in financial markets: Evidence from the mortgage market (2022)
Working Paper: The Cost of Steering in Financial Markets: Evidence from the Mortgage Market (2019)
Working Paper: The cost of steering in financial markets: evidence from the mortgage market (2019)
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