Steering Consumers to Affiliated Financial Services: Evidence from Pre-Approvals and the Cost of Credit

56 Pages Posted: 31 May 2019 Last revised: 30 Jan 2021

See all articles by Luis A. Lopez

Luis A. Lopez

University of Illinois at Chicago

Shawn McCoy

University of Nevada, Las Vegas - College of Business - Department of Economics

Vivek Sah

University of Nevada, Las Vegas - College of Business - Department of Economics

Date Written: July 24, 2019

Abstract

We use artificial intelligence to identify financial steering activity in residential mortgage markets. Using mortgage data on bank sold properties and linking those to a unique data set that allows us to observe private information exchanges between listing and buyer agents, our results provide some interesting insights linked to steered mortgages. We find that over 50 percent of mortgages on bank sold properties involved steering activity. The underlying properties when listed for sale had selling constraints requiring financed buyers to be cross-qualified by an affiliated lender even if they had already been pre-qualified with another lender. Furthermore, while steering appears to give lenders selling foreclosed properties an advantage in capturing the mortgage business of new borrowers, we find evidence that steering might actually benefit borrowers.

Keywords: Financial Steering, Mortgages, Referrals, Kickbacks, Machine Learning

JEL Classification: G21, G24, G28, R22

Suggested Citation

Lopez, Luis A. and McCoy, Shawn and Sah, Vivek, Steering Consumers to Affiliated Financial Services: Evidence from Pre-Approvals and the Cost of Credit (July 24, 2019). Available at SSRN: https://ssrn.com/abstract=3365347 or http://dx.doi.org/10.2139/ssrn.3365347

Luis A. Lopez (Contact Author)

University of Illinois at Chicago ( email )

1200 W Harrison St
Chicago, IL 60607
United States

Shawn McCoy

University of Nevada, Las Vegas - College of Business - Department of Economics ( email )

4505 S. Maryland Parkway
Las Vegas, NV 89154
United States

Vivek Sah

University of Nevada, Las Vegas - College of Business - Department of Economics ( email )

4505 S. Maryland Parkway
Las Vegas, NV 89154
United States

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