Broker Compensation Patterns and Trends, 2004 – 2010
By: Marsha Courchane, Rajeev Darolia, and Peter Zorn
During the past decade, considerable research has focused on the differences between prime and subprime lending. Much of that focus was on the difference in products offered (no documentation loans, high loan-to-value loans, etc.) or on whether the lender was subject to financial institution regulatory authority or was an independent mortgage company.
Interestingly, there has been little research on any differences across channel. While there have been some notable class action litigation suits filed pertaining to broker compensation, and changes following passage of the Dodd-Frank legislation mean that the identification of brokers and loan officres and their compensation levels will be tightly regulated, it is still important to assess the economics of the choices borrowers make concerning loan channel and the outcomes that arise between the retail and the wholesale channel.
Using lender specific information on number of prime and subprime lenders from the period from 2004 – 2010, we will examine factors that influence channel choice and determine differences in fees paid by borrowers, given channel.