Wednesday, January 7, 2009

Why didn't they ask for better prices?

Competition among loan wholesales for mortgage applications along some unusual dimensions:
The wholesaler's job is to buy loan applications from independent mortgage brokers so that lenders can turn them into loans. Wholesalers are paid on commission: the more loans they generate, the more money they make. ...

But as the housing bubble inflated, ... the deal-making turned frenetic. Multiple wholesalers began inundating mortgage brokers with offers for the same applications. Some brokers chose to exercise their power by asking for something extra in exchange for their business: sex.

If mortgage wholesalers had been paid based on profitability, would this have resulted in higher prices for the applications instead of sex?

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