Is Competition a Cure for Confusion? Evidence from the Residential Mortgage Market

61 Pages Posted: 2 Aug 2019 Last revised: 12 Sep 2020

See all articles by Steven G. Malliaris

Steven G. Malliaris

University of Georgia - Department of Banking and Finance

Daniel A. Rettl

University of Georgia - Department of Banking and Finance

Ruchi Singh

University of Georgia

Date Written: July 30, 2019

Abstract

Using the National Survey of Mortgage Originations, we document that borrowers who are more financially sophisticated (measured by their self-reported understanding of the mortgage process) and more exposed to competition (measured by the number of lenders they considered) pay lower mortgage rate spreads. Yet competition is not a substitute for sophistication: the benefits of competition accrue to sophisticates as well as to naifs. Our results complement those from the literature detailing the limits of advice and education, and collectively they paint a pessimistic view about the prospects for simple interventions to close the mortgage rate gap between the informed and the naive.

Keywords: financial literacy, competition, mortgage, risk, advice

JEL Classification: D14, D4, G21, L85, R21

Suggested Citation

Malliaris, Steven G. and Rettl, Daniel A. and Singh, Ruchi, Is Competition a Cure for Confusion? Evidence from the Residential Mortgage Market (July 30, 2019). Available at SSRN: https://ssrn.com/abstract=3429267 or http://dx.doi.org/10.2139/ssrn.3429267

Steven G. Malliaris

University of Georgia - Department of Banking and Finance ( email )

Terry College of Business
Athens, GA 30602-6253
United States

Daniel A. Rettl

University of Georgia - Department of Banking and Finance ( email )

Terry College of Business
Athens, GA 30602-6253
United States

Ruchi Singh (Contact Author)

University of Georgia ( email )

Athens, GA 30602-6254
United States

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