Mortgage Broker Regulations That Matter: Analyzing Earnings, Employment, and Outcomes for Consumers

Abstract

Consultants for their assistance with the chapter, and the staff at the Board of Governors of the Federal Reserve System for providing much of our data. We also thank David Autor, Richard Freeman, Alexandre Mas, and two referees for comments that greatly improved the chapter. In addition, we benefi ted from suggestions from Susan Woodward and participants at seminars hosted by the Aarhus School of Business, the Federal Reserve Board, the Federal Trade Commission,

Guild-Ridden Labor Markets: The Curious Case of Occupational Licensing

“…The results from Kleiner and Todd (2009) show that the relationship between mortgage broker licensing and market outcomes differs among the types of licensing requirements. Specifi cally, fi nancial bonding or net worth requirements are associated with somewhat higher earnings; modest reductions in the number of mortgage brokers and the number of subprime loans originated, as well as with somewhat higher foreclosure rates; and higher interest rates on brokered loans.…”

“…1 Similarly, Kleiner and Todd (2009) fi nd that tougher licensing of mortgage brokers is not associated with fewer housing foreclosures but is related to higher-priced mortgages.…”

“…Studies of occupational licensing have shown the infl uence of licensing when regulations are introduced or become more stringent (Cathles, Harrington, and Krynski 2010;Cox and Foster 1990;Kleiner and Todd 2009). A key question relates to the issue of the infl uence of occupational regulations on wages, employment, and prices when regulations are changed in ways that alter the boundaries and shared work space between two occupations.…”

“…Specifi cally, fi nancial bonding or net worth requirements are associated with somewhat higher earnings; modest reductions in the number of mortgage brokers and the number of subprime loans originated, as well as with somewhat higher foreclosure rates; and higher interest rates on brokered loans. The evolution of regulation in this industry has had numerous unintended side effects for workers in the occupation, who now receive higher pay, and for the consumers of their fi nancial services, who have fewer brokers and greater constraints on their ability to compete on price and on their availability (Kleiner and Todd 2009).…”

“…This will result in slower adjustment costs to regional economic shocks, which can result in higher unemployment. Licensing also can lead to higher prices for services because it restricts employment (Bond et al 1980;Cox and Foster 1990;Kleiner and Kudrle 2000;Kleiner and Todd 2009;Shepard 1978). …”