Working Paper: NBER ID: w16007
Authors: Susan E. Woodward; Robert E. Hall
Abstract: Mortgage loans are leading examples of transactions where experts on one side of the market take advantage of consumers' lack of knowledge and experience. We study the compensation that borrowers pay to mortgage brokers for assistance from application to closing. Two findings support the conclusion that confused borrowers overpay for brokers' services: (1) A model of effective shopping shows that borrowers sacrifice at least $1,000 by shopping from too few brokers. (2) Borrowers who compensate their brokers with both cash and a commission from the lender pay twice as much as similar borrowers who pay no cash.
Keywords: No keywords provided
JEL Codes: D12; D18; G21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| number of brokers consulted (G24) | total cost incurred (H22) |
| payment with both cash and YSP (G29) | total charges (L97) |
| confusion about mortgage pricing (G21) | total charges (L97) |
| lower education and minority status (I24) | higher charges (R48) |