Steering Consumers to Lenders in Residential Real Estate Markets

Abstract

Using novel data on property listings that allow us to observe private information exchanges between real estate agents, we identify bidding constraints requiring financed buyers to obtain a pre-qualification letter from a seller-preferred lender even if the buyers have been pre-qualified with other lenders. More than half of the steering activity is driven by sellers of foreclosed properties. We find evidence that steering increases the likelihood of sale but not that it drives borrowers to take out high-cost or complex mortgages. However, steering-kickback arrangements potentially crowd out buyers who rely on mortgage financing.

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

JEL Classification: G21, G24, G28, R22