Mortgage Broker Regulations that Matter: Analyzing Earnings, Employment, and Outcomes for Consumers

63 Pages Posted: 21 Dec 2007 Last revised: 28 Dec 2007

See all articles by Morris M. Kleiner

Morris M. Kleiner

University of Minnesota - Twin Cities - Hubert H. Humphrey Institute of Public Affairs; National Bureau of Economic Research (NBER)

Richard M. Todd

affiliation not provided to SSRN

Date Written: December 2007

Abstract

As the role of mortgage brokers in mortgage origination grew from insignificant in the 1980s to dominant in recent years, questions have arisen about whether its services help or harm consumers. In response, states have increasingly regulated the business, largely by creating and tightening occupational licensing requirements for mortgage brokers. The question of whether increased occupational licensing of mortgage brokers improves consumer outcomes is theoretically ambiguous and has been little studied empirically. This study introduces a new database of mortgage broker licensing requirements and assesses the relationships between these requirements and outcomes in both the labor market for brokers and the consumer market for mortgages. We find that one typical regulation--the requirement in many states that mortgage brokers maintain a surety bond or minimum net worth--has a significant and fairly consistent statistical relationship with both labor and consumer market outcomes. In particular, we find that tighter bonding/net worth requirements are associated with slightly higher broker earnings, fewer brokers, fewer subprime mortgages, higher foreclosure rates, and a greater percentage of high-interest-rate mortgages. Although we do not provide a full causal interpretation of these results, we take seriously the possibility that restrictive bonding requirements for mortgage brokers have unintended negative consequences for many consumers. On balance, our results also seem to support the relevance of theories of occupational licensing that stress the importance of financial entry and exit barriers.

Suggested Citation

Kleiner, Morris M. and Todd, Richard, Mortgage Broker Regulations that Matter: Analyzing Earnings, Employment, and Outcomes for Consumers (December 2007). NBER Working Paper No. w13684. Available at SSRN: https://ssrn.com/abstract=1077810

Morris M. Kleiner (Contact Author)

University of Minnesota - Twin Cities - Hubert H. Humphrey Institute of Public Affairs ( email )

and the Industrial Relations Center
Minneapolis, MN 55455
United States
612-625-2089 (Phone)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Richard Todd

affiliation not provided to SSRN

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