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

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

The Review of Financial Studies, 2025, vol. 38, issue 11, 3284-3328

Abstract: We study the role of brokers in selection markets. We find broker-clients in the Canadian mortgage market are observationally different from branch-clients. They finance larger loans with more leverage and longer amortization. We build and estimate a model of mortgage demand to disentangle three possible explanations for these riskier product choices: (1) selection on observables, (2) unobserved borrower preferences for riskier loans, and (3) a causal effect of brokers. Although we find that brokers influence product choices, the main reason borrowers choose high-leverage products is unobserved preferences. Borrowers prefer larger loans and brokers facilitate qualification for them.

Keywords: G21; D12 (search for similar items in EconPapers)
Date: 2025
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