Mortgage Broker Disclosure Effects
The Effect of Mortgage Broker Compensation Disclosures on Consumers and Competition:

This study of over 500 recent mortgage customers in an experimental setting finds that the mortgage broker compensation disclosure proposed by the Department of Housing and Urban Development (HUD) is likely to confuse consumers, cause a significant proportion to choose loans that are more expensive than the available alternatives, and create a substantial consumer bias against broker loans, even when the broker loans cost the same or less than direct lender loans. Similar adverse effects were found for two alternative versions of the disclosure.

If consumers notice and read the compensation disclosure, the resulting consumer confusion and mistaken loan choices will lead a significant proportion of borrowers to pay more for their loans than they would otherwise. The bias against mortgage brokers will put brokers at a competitive disadvantage relative to direct lenders and possibly lead to less competition and higher costs for all mortgage customers.

Other components of HUD's RESPA reform proposal are far more beneficial. These policies focus on clearer disclosure of mortgage costs, a clarification of the role of mortgage originators, and the encouragement and facilitation of borrower comparison shopping across originators. Implementation of these policies, along with appropriate refinements to ensure that consumers easily understand the disclosures, would provide benefits to consumers without the adverse effects that are likely to arise from the compensation disclosure. For complete details please visit

Loan choice. All three versions of the compensation disclosure also caused a statistically significant decrease in the proportion of respondents choosing the less expensive loan when asked which loan they would choose if they were shopping for a mortgage. These results are illustrated in Figure ES.1.


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