Minimizing predatory lending: Designing a long-term compensation structure to minimize the actions of opportunistic mortgage brokers

Patrick Payne and Tammy Huffman Ph.D
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Patrick Payne: Texas Tech University
Tammy Huffman Ph.D: Utah Valley University

International Journal of Business and Social Research, 2012, vol. 2, issue 5, 8-19

Abstract: This paper addresses the inadequacies in the current compensation structure for mortgage brokers, and asserts that the resulting opportunistic behavior by brokers played a major role in the 2008 collapse of the mortgage market. We utilize agency theory as an underpinning to suggest that increased regulation will have only a limited impact on self-serving behavior due to the complex information asymmetries possessed by brokers. We posit that a restructured long-term compensation package would be effective in aligning the interests of borrowers and brokers, ultimately reducing the level of mortgage defaults and foreclosures.

Keywords: Mortgage Brokers; Compensation; Agency theory; Information asymmetry; Predatory lending; Banking (search for similar items in EconPapers)
Date: 2012
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Persistent link: https://EconPapers.repec.org/RePEc:lrc:larijb:v:2:y:2012:i:5:p:8-19

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