Mortgage Brokers and the Refinancing Transaction: Evidence from CRA Borrowers

This study adds to an emerging literature on the lending practices of mortgage brokers during the run-up in home prices prior to 2006. Following a sample of low— and moderate-income borrowers through the first years following home purchase, the analysis identifies differences in the refinancing tran...

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Bibliographic Details
Published in:The journal of real estate finance and economics 2011-02, Vol.42 (2), p.181-210
Main Authors: Spader, Jonathan S., Quercia, Roberto G.
Format: Article
Language:English
Subjects:
Adjustable rate mortgages
Analysis
ARM
Borrowing
Community development banks
Economic theory
Economics
Economics and Finance
Financial Services
Foreclosure
Housing prices
Licenses
Loan originations
Mortgage brokers
Mortgage loans
Mortgage markets
Mortgages
Purchasing
Real estate market
Refinancing
Regional/Spatial Science
Regulatory reform
Studies
Subprime lending
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Summary:This study adds to an emerging literature on the lending practices of mortgage brokers during the run-up in home prices prior to 2006. Following a sample of low— and moderate-income borrowers through the first years following home purchase, the analysis identifies differences in the refinancing transaction associated with the use of mortgage brokers vs. retail lenders. Specifically, the analysis includes measures of the refinancing process, including whether the lender initiated contact with the borrower, whether the terms of the mortgage changed at closing, and the level of borrower satisfaction in hindsight. Care must be taken in extrapolating from this sample to the broader mortgage market, as all borrowers refinanced out of 30-year fixed-rate purchase mortgages in the Community Advantage Program (CAP). Nevertheless, analysis of this sample offers unique insight into borrowers’ interactions with mortgage brokers during the refinancing transaction. Origination with a mortgage broker, compared with origination through a retail lender, is associated with both a less satisfactory refinancing process and a higher likelihood of refinancing into an adjustable-rate mortgage (ARM).
ISSN:0895-5638
1573-045X
DOI:10.1007/s11146-009-9192-0