Real Estate Intermediaries
Paper Session
Sunday, Jan. 3, 2021 12:15 PM - 2:15 PM (EST)
- Chair: Lu Han, University of Toronto
Clogged Intermediation: Were Home Buyers Crowded Out?
Abstract
Post-crisis policy interventions significantly increased the demand for mortgage refinancing, but there is an unexplored possibility that the surge in refinancing applications crowded out the supply of credit to home buyers. In this paper, we examine two frictions that hamper financial intermediation and cause banks to substitute away from home purchase loans and toward refinance loans. If banks are constrained by risk capacity, they may prefer safer loans. If banks are constrained by operating capacity, they may prefer applications that require less processing time. We find that following the recent financial crisis, banks constrained by these capacity limits rationed credit to home buyers while supplying greater refinancing credit.Mortgage Servicing Fees and Servicer Behavior: A Close Examination of the Unexpected Heterogeneity in Servicing Fees
Abstract
Even though mortgage servicing plays an important role in housing finance, directly affecting millions of homeowners and mortgage-backed security investors, its economics is not well understood, hence making policy formulation and implementation challenging. To fill this gap, we examine the determinants of servicing fees in the non-agency mortgage market and explore how the current compensation structure affects servicer behavior during default remediation. We show that servicer compensation reflects expected mortgage termination risks and depends on whether servicing is outsourced. Furthermore, servicing fees decrease with deal allocation, which suggests economies of scale in servicing, and increase with the intensity of default in servicers' mortgage portfolios. Finally, it appears that issuers' drive to maximize deal returns by auctioning mortgage servicing rights leads to servicing fees determining mortgage modifications and foreclosures, possibly to the detriment of security investors. This is the first study addressing this potentially serious incentive problem in mortgage servicing. The economics of servicing will continue to produce low levels of mortgage renegotiation, despite the Dodd-Frank requirements on servicers.The Impact of Real Estate Agents’ Networks on Price and Liquidity
Abstract
This paper examines the impact real estate agents’ networks have on transaction prices and market liquidity. Since the selling price is a function of the location and amenities of the traded home, the property value should not vary due to agents’ familiarity with other agents. We hypothesize that an agent’s network improves liquidity as measured by a shorter time-on-market (TOM) since the agent has access to additional informal marketing channel. In addition, an agent’s network may improve negotiation efficiency when familiarity and cooperation between counterparties lessens contractual frictions and/or helps minimize informational asymmetries. To the extent this occurs, an agent’s network may also affect the transaction price of a home in addition to the primary hypothesis that well developed a network should improve liquidity. Since an agent’s network is a function of the amount of time they have been an active in the real estate professional as well as their productivity, we take care to best ensure we disentangle network effects from experience and productivity effects in our model of price and TOM. Our results demonstrate that agents who build an effective network help to reduce the average TOM by a statistically and economically meaningful amount for home sellers in our sample.Discussant(s)
Cameron LaPoint
,
Yale University
Anthony Lee Zhang
,
University of Chicago
Seung-Hyun Hong
,
University of Illinois-Urbana-Champaign
Sophia Gilbukh
,
City University of New York-Baruch College
JEL Classifications
- G2 - Financial Institutions and Services