Mortgage Brokers and the Effectiveness of Regulatory Oversights

• 成果类型: Article
• 署名作者: Agarwal, Sumit; Ang, Swee Hoon; Deng, Yongheng; Wang, Yonglin
• 署名单位: National University of Singapore; National University of Singapore; University of Wisconsin System; University of Wisconsin Madison; Lingnan University
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2020.3701
• 发表日期: 2021
• 页码: 5278-5300
• 关键词: mortgage brokers; occupational licensing regulations; reported and unreported information; loan performance

摘要

This paper studies the responses among different types of mortgage brokers to occupational licensing regulations. By explicitly accounting for heterogeneities between sole and corporate brokers, we find evidence that sole brokers respond to financial regulatory oversight by applying a more stringent screening process in conducting brokerage activities, hence achieving better loan performances. Specifically, loans originated through sole brokers exhibit higher quality on an array of credit-relevant characteristics, including those reported and unreported to future investors. By contrast, we find no such regulatory effect on corporate brokers who tend to rely extensively on reported characteristics that are critical to the subsequent loan securitization at the expense of unreported information despite the latter indicating potential risks. Hence, the agency problem among sole brokers can be mitigated by the consolidated financial requirement for occupational licensing. However, such provision is ineffective in governing corporate brokers. Additionally, welfare gains associated with the occupational licensing regulation are achieved at the expense of prospective borrowers paying a higher loan price and having reduced credit access. Stricter licensing regulations may induce welfare loss related to credit rationing as reasonable loan applications are not funded, including those with potentially lower default risk.