Mortgage Brokers and the Effectiveness of Regulatory Oversights

Sumit AGARWAL, Swee Hoon ANG, Yongheng DENG, Yonglin WANG*

*Corresponding author for this work

Research output: Journal PublicationsJournal Article (refereed)peer-review


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.
Original languageEnglish
Pages (from-to)5278-5300
Number of pages23
JournalManagement Science
Issue number8
Early online date25 Feb 2021
Publication statusPublished - Aug 2021

Bibliographical note

Y. Wang thanks Lingnan University for the Faculty Research Grant [Grant 102169], Direct Grant [Grant DR20B8], and its Pan Sutong Shanghai-Hong Kong Economic Policy Research Institute for financial support.

The authors appreciate insightful comments from the editor, Kay Giesecke; the anonymous associate editor; and the referee. Additionally, they thank Antje Berndt; the discussant and participants at the 2020 American Real Estate and Urban Economics Association-Allied Social Science Associations (AREUEA-ASSA) Annual Meeting; and other colleagues and friends, including Souphala Chomsisengphet, Wenlan Qian, Teng Li, Jing Wu, and James Conklin, for their helpful comments and suggestions. They also thank Da Li for research assistance. Any errors are their own.


  • Loan performance
  • Mortgage brokers
  • Occupational licensing regulations
  • Reported and unreported information

Cite this