Applied Micro Seminar - Jason Allen (Bank of Canada)
Title: The role of intermediaries in selection markets: Evidence from mortgage lending
Abstract: We study the role of brokers in selection markets. We find broker-clients in the Canadian mortgage market are observationally different from branch clients. They finance larger loans and have more leverage. We build and estimate a model of mortgage demand to disentangle three possible explanations for these riskier product choices: (i) selection on observables, (ii) unobserved borrower preferences for riskier loans, and (iii) a causal effect of brokers. Although we find that brokers influence product choices, the main reason borrowers choose riskier products is unobserved preferences. Borrowers prefer larger loans, and brokers facilitate qualification for them.