Working Paper: NBER ID: w31989
Authors: Jason Allen; Robert Clark; Jean-François Houde; Shaoteng Li; Anna V. Trubnikova
Abstract: We study the role of brokers in selection markets. We find broker-clients in the Canadian mortgage market are observationally different from branch-clients. They finance larger loans with more leverage and longer amortization. We build and estimate a model of mortgage demand to disentangle three possible explanations for these riskier product choices: (i) selection on observables, (ii) unobserved borrower preferences for riskier loans, and (iii) a causal effect of brokers. Although we find that brokers influence product choices, the main reason borrowers choose high-leverage products is unobserved preferences. Borrowers prefer larger loans and brokers facilitate qualification for them.
Keywords: No keywords provided
JEL Codes: G21; L80
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Brokers influence product choices (G24) | Borrowers select high-leverage products (G51) |
| Unobserved borrower preferences (D11) | Borrowers select high-leverage products (G51) |
| Brokers facilitate access to riskier mortgage products (G21) | Borrowers select riskier mortgage products (G21) |
| Brokers influence product choices (G24) | Differences in product choices between broker-clients and branch-clients (G24) |
| Unobserved borrower preferences (D11) | Differences in product choices between broker-clients and branch-clients (G24) |