How Subprime Borrowers and Mortgage Brokers Shared the Pie

74 Pages Posted: 15 Oct 2013 Last revised: 30 Jul 2014

See all articles by Antje Berndt

Antje Berndt

Australian National University (ANU) - Research School of Finance, Actuarial Studies and Applied Statistics

Burton Hollifield

Carnegie Mellon University - David A. Tepper School of Business

Patrik Sandås

University of Virginia

Multiple version iconThere are 4 versions of this paper

Date Written: July 29, 2014

Abstract

We develop an equilibrium model for origination fees charged by mortgage brokers and show how the equilibrium fee distribution depends on borrowers' valuation for their loans and their information about fees. We use non-crossing quantile regressions and data from a large subprime lender to estimate conditional fee distributions. Given the fee distribution, we identify the distributions of borrower valuations and informedness. The level of informedness is higher for larger loans and in better educated neighborhoods. We quantify the fraction of the surplus from the mortgage that goes to the broker, and how it decreases as the borrower becomes more informed.

Keywords: Mortgage broker compensation; Borrower valuation; Borrower informedness

JEL Classification: G21

Suggested Citation

Berndt, Antje and Hollifield, Burton and Sandas, Patrik, How Subprime Borrowers and Mortgage Brokers Shared the Pie (July 29, 2014). Available at SSRN: https://ssrn.com/abstract=2339996 or http://dx.doi.org/10.2139/ssrn.2339996

Antje Berndt (Contact Author)

Australian National University (ANU) - Research School of Finance, Actuarial Studies and Applied Statistics ( email )

Canberra, ACT 0200
Australia

HOME PAGE: http://www.cbe.anu.edu.au/about/staff-directory/?profile=Antje-Berndt

Burton Hollifield

Carnegie Mellon University - David A. Tepper School of Business ( email )

5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States
(412) 268-6505 (Phone)
(412) 268-6837 (Fax)

Patrik Sandas

University of Virginia ( email )

McIntire School of Commerce
Charlottesville, VA 22904
United States
1-434-243-2289 (Phone)

HOME PAGE: http://www.comm.virginia.edu/faculty_research/staff_directory/sandas.html

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