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Explore sources of market failure in mortgage intermediary market due to lack of transparency and reputational effects. Discover policy alternatives and solutions for better consumer protection. Dive into the impact of political changes on financial intermediation practices.
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Intermediaries in the Mortgage Market Stijn van den Broek 28 October 2004
Sources of market-failure in the mortgage market • Information-asymmetries: 1. complex products 2. complex contractual terms • Lack of reputational effects
Market solution • Different channels: 1. direct writing (do-it-yourself or provision of voluntary information leaflet) 2. internet (comparison-sites) 3. personal advice and intermediation
Sources of market-failure in the intermediary market • lack of transparency about quality and price • lack of reputational effects • locked-in situation consumers leads to: • adverse selection (“commission-hunting”/bad advice) • moral hazard (poor after-sales service) • misselling (non-optimal advice)
Market solution • Code of conduct on the provision of information on service: Gedragscode Informatieverstrekking dienstverlening Intermediair (1 Januari 2002) • Coverige (± 99%): yet still dissatisfaction among “good” intermediaries and suppliers
Political context • Changes in the Act on financial intermediation: 2001 commission-refund-possibility 2002 freedom of intermediation-rewards • Financial Services Act: 1. licensing and supervision 2. duty to provide good services
Misselling as a residual problem • Experiences in Engeland and the U.S.
Ecorys Research • Set-up and methodology • Results
Policy-alternatives • best advice • independency-label • transparency on commissions
Policy-development • preconditions: 1. low administrative costs 2. low supervision costs • sector-consultation • planning (december 2004)