Study Reveals Brokers Are Less Costly Option for Sub-Prime Borrowers

New study finds factual evidence that consumers pay less with a broker

Brokers are a more cost-effective option for consumers in the sub-prime home loan market, according to a joint study re-leased by economists at George Washington and Oklahoma State universities.

The study compared sub-prime loans originated by brokers and traditional lenders such as banks between 1995 and 2003. Its findings reveal that the reason brokers originate more than 50% of all residential loans is because they are a more efficient and cost-effective option for consumers.

"Brokers are small business men and women who have to be competitive to remain in business," says NAMB President Harry Dinham. "The hard data in this report is a clear sign that this competition is benefiting consumers in the sub-prime market."

Dinham says that it is unfortunate that some groups have tried to use anecdotal evidence to accuse brokers of encouraging consumers to choose loans that are more profitable for the originator. This is commonly called "steering."

The study notes that, "The evidence does not support the hypothesis that customers of brokers generally pay higher prices than customers of lenders because of steering… One can conclude only that in the sub prime market brokers' customers generally paid less than lenders customers."

"Unlike many of the largest lending institutions, most brokers are members of their community who help originate loans for the same people we spend time with at Kiwanis Club meetings and Little League games," says Dinham. "Our reputation is the heart of our business and it only makes sense that we would do everything in our power to make sure our customers are treated fairly." RE