Real estate agents and loan officers form secret referral networks that drive up mortgage rates even when dozens of competing banks are just down the street.
April 26, 2026
Original Paper
Market Power in Mortgage Pricing: the Role of Referral Lending
SSRN · 6625458
The Takeaway
Mortgage markets are traditionally viewed as competitive arenas where more banks lead to lower prices for consumers. These informal social ties between realtors and lenders create artificial pockets of high prices by funneling borrowers into specific deals. Minority borrowers pay the highest premium in this system, often receiving rates that have nothing to do with their credit scores or local competition. The presence of many banks does not matter if a middleman controls the flow of information to the borrower. Consumers end up paying thousands of dollars in extra interest simply because of a recommendation from their agent.
From the abstract
Despite intense competition among mortgage lenders, borrowers continue to face elevated rate spreads and substantial price dispersion. We argue that realtor-loan officer referral networks are a key source of lender market power: by steering homebuyers toward a limited set of loan officers, these networks restrict effective borrower choice even in otherwise competitive markets. Using a novel dataset linking 81,306 realtors to 102,860 loan officers in 41 states, we document that such networks are