Loan Product Steering in Mortgage Markets

46 Pages Posted: 3 Oct 2016

See all articles by Sumit Agarwal

Sumit Agarwal

National University of Singapore

Gene Amromin

Federal Reserve Bank of Chicago

Itzhak Ben-David

Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER)

Douglas D. Evanoff

Federal Reserve Bank of Chicago

Date Written: September 2016

Abstract

We present evidence of a particular type of loan steering in which lenders lead borrowers to take out high margin mortgage products. We identify this activity by comparing borrowers who were rejected by lenders but were subsequently approved by their affiliates (steered borrowers) to other initially rejected borrowers who obtained loans elsewhere. Although steered borrowers default less, they pay significantly higher interest rates and are more likely to borrow through contracts with unconventional features, such as negative amortization or prepayment penalties. Female borrowers, single borrowers with no co-signers, and borrowers in low-income locations are more likely to be steered.

Suggested Citation

Agarwal, Sumit and Amromin, Gene and Ben-David, Itzhak and Evanoff, Douglas D., Loan Product Steering in Mortgage Markets (September 2016). NBER Working Paper No. w22696. Available at SSRN: https://ssrn.com/abstract=2846932

Sumit Agarwal (Contact Author)

National University of Singapore ( email )

15 Kent Ridge Drive
Singapore, 117592
Singapore
8118 9025 (Phone)

HOME PAGE: http://www.ushakrisna.com

Gene Amromin

Federal Reserve Bank of Chicago ( email )

230 South LaSalle Street
230 S. LaSalle
Chicago, IL 60604
United States
3123225368 (Phone)
3123226011 (Fax)

Itzhak Ben-David

Ohio State University (OSU) - Department of Finance ( email )

2100 Neil Avenue
Fisher 700D
Columbus, OH 43210-1144
United States
773 988 1353 (Phone)

HOME PAGE: http://fisher.osu.edu/fin/faculty/Ben-David/index.htm

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

HOME PAGE: http://fisher.osu.edu/fin/faculty/Ben-David/

Douglas D. Evanoff

Federal Reserve Bank of Chicago ( email )

230 South LaSalle Street
Chicago, IL 60604
United States
312-322-5814 (Phone)

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