The Role of Mortgage Brokers in the Subprime Crisis

67 Pages Posted: 12 Jul 2010 Last revised: 13 Mar 2023

See all articles by Antje Berndt

Antje Berndt

Australian National University, College of Business and Economics

Burton Hollifield

Carnegie Mellon University - David A. Tepper School of Business

Patrik Sandås

University of Virginia

Multiple version iconThere are 3 versions of this paper

Date Written: July 2010

Abstract

Prior to the subprime crisis, mortgage brokers originated about 65% of all subprime mortgages. Yet little is known about their behavior during the runup to the crisis. Using data from New Century Financial Corporation, we find that brokers earned an average revenue of $5,300 per funded loan. We decompose the broker revenues into a cost and a profit component and find evidence consistent with brokers having market power. The profits earned are different for different types of loans and vary with borrower, broker, regulation and neighborhood characteristics. We relate the broker profits to the subsequent performance of the loans and show that brokers earned high profits on loans that turned out to be riskier ex post.

Suggested Citation

Berndt, Antje and Hollifield, Burton and Sandas, Patrik, The Role of Mortgage Brokers in the Subprime Crisis (July 2010). NBER Working Paper No. w16175, Available at SSRN: https://ssrn.com/abstract=1636644

Antje Berndt (Contact Author)

Australian National University, College of Business and Economics ( email )

Australian National University
Bldg 26C
Canberra, ACT 2601
Australia

HOME PAGE: http://https://cbe.anu.edu.au/about/staff-directory/professor-antje-berndt

Burton Hollifield

Carnegie Mellon University - David A. Tepper School of Business ( email )

5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States
(412) 268-6505 (Phone)
(412) 268-6837 (Fax)

Patrik Sandas

University of Virginia ( email )

McIntire School of Commerce
Charlottesville, VA 22904
United States
1-434-243-2289 (Phone)

HOME PAGE: http://www.comm.virginia.edu/faculty_research/staff_directory/sandas.html

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