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What Broker Charges Reveal About Subprime Mortgage Credit Risk

Author

Listed:
  • Antje Berndt

    (Australian National University)

  • Burton Hollifield

    (Carnegie Mellon University)

  • Patrik Sandås

    (University of Virginia)

Abstract

Prior to the subprime crisis, mortgage brokers charged higher fees for subprime loans that turned out to be riskier ex post, even when conditioning on other risk characteristics. Borrowers who paid higher conditional fees were inherently more risky, not just because they paid higher fees. The association between conditional fees and delinquency risk was stronger for purchase rather than refinance loans, and for loans originated by brokers who had less frequent interactions with the lender. This work sheds light on how regulation that limits origination charges to a fixed fraction of the loan amount may impact mortgage lending.

Suggested Citation

  • Antje Berndt & Burton Hollifield & Patrik Sandås, 2021. "What Broker Charges Reveal About Subprime Mortgage Credit Risk," The Journal of Real Estate Finance and Economics, Springer, vol. 63(2), pages 280-326, August.
    • Handle: RePEc:kap:jrefec:v:63:y:2021:i:2:d:10.1007_s11146-020-09774-5
    DOI: 10.1007/s11146-020-09774-5
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    References listed on IDEAS

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    More about this item

    Keywords

    Mortgage brokers; Loan performance; Subprime crisis;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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