The Industrial Organization of Bad Mortgage Loans

D.P. Baron

Review of Business and Economic Literature, 2010, vol. 55, issue 2, 117-136

Abstract: At the heart of the recent financial crisis were subprime mortgages, many of which were revealed to be bad. This paper shows that the opportunity to sell mortgage loans in an opaque securitization market explains subprime loans with a negative expected return when held to maturity. The paper also shows that lenders that maintain traditional lending standards employ their own brokers and compensate them with a salary. In contrast, subprime lenders contract with independent mortgage brokers and compensate them with a positive piece rate and a negative franchise fee paid to the lender. Subprime lenders are larger and more profitable than prime lenders whenever subprime loans are made.

Date: 2010
References: Add references at CitEc
Citations:

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:sen:rebelj:v:55:i:2:y:2010:p:117-136

Access Statistics for this article

Review of Business and Economic Literature is currently edited by Hans Kluwer

More articles in Review of Business and Economic Literature from Intersentia
Bibliographic data for series maintained by Petra Van den Bempt ( this e-mail address is bad, please contact ).