The Pricing of Mortgages by Brokers: An Agency Problem?

30 Pages Posted: 15 Oct 2009

See all articles by Michael LaCour-Little

Michael LaCour-Little

Federal National Mortgage Association (Fannie Mae); California State University at Fullerton

Date Written: October 14, 2009


Mortgage brokers have grown in importance in the home mortgage origination process in recent years, suggesting they provide a valuable service matching borrowers and lenders, although their involvement has also been linked to the recent surge in mortgage defaults and foreclosures. As in other markets dominated by brokers, agents’ incentives are often poorly aligned with those with whom they do business, in this case both the lenders who bear the risks once the loan is originated and the consumer who assumes liability for the debt and contract terms. This paper describes the institutional arrangements under which mortgage brokers operate and empirically test whether loans originated by mortgage brokers are lower in cost than those that would be available directly from retail lenders. The results suggest that loans originated by brokers cost borrowers about 20 basis points more, on average, than retail loans and that this premium is higher for lower income and lower credit score borrowers.

Keywords: Broker, Mortgage, origination

Suggested Citation

LaCour-Little, Michael, The Pricing of Mortgages by Brokers: An Agency Problem? (October 14, 2009). Journal of Real Estate Research, Vol. 31, No. 2, 2009. Available at SSRN:

Michael LaCour-Little (Contact Author)

Federal National Mortgage Association (Fannie Mae) ( email )

3900 Wisconsin Avenue, NW
Washington, DC 20016-2892
United States
202-752-3318 (Phone)

California State University at Fullerton ( email )

5133 Mihaylo Hall
Fullerton, CA 92834-6848
United States
657-278-4014 (Phone)
657-278-2161 (Fax)

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