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

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

No 31989, NBER Working Papers from National Bureau of Economic Research, Inc

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: (i) selection on observables, (ii) unobserved borrower preferences for riskier loans, and (iii) 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.

JEL-codes: G21 L80 (search for similar items in EconPapers)
Date: 2023-12
New Economics Papers: this item is included in nep-ban and nep-ure
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