The cost of steering in financial markets: Evidence from the mortgage market
Journal of Financial Economics
; 143(3):1209, 2022.
Article
in English
| ProQuest Central | ID: covidwho-1739927
ABSTRACT
We build a model of the mortgage market in which banks attain their optimal mortgage portfolio by setting rates and steering customers. Sophisticated households know which mortgage type is best for them;naive households are susceptible to banks' steering. Using data on the universe of Italian mortgages, we estimate the model and quantify the welfare implications of steering. The average cost of the distortion is equivalent to 16% of the annual mortgage payment. A financial literacy campaign is beneficial for naive households, but hurts sophisticated ones. Since steering also conveys information about mortgages, restricting steering might result in significant welfare losses.
Full text:
Available
Collection:
Databases of international organizations
Database:
ProQuest Central
Language:
English
Journal:
Journal of Financial Economics
Year:
2022
Document Type:
Article
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