Market Power in Mortgage Pricing: the Role of Referral Lending

Despite intense competition among mortgage lenders, borrowers face elevated rate spreads and price dispersion. We identify realtor–loan-officer referral networks as a source of lender market power: by steering homebuyers toward a few loan officers, they restrict borrower choice. Linking 78,706 realtors to 101,316 loan officers across 41 states, we find these networks pervasive and concentrated. Instrumenting for referral exposure with realtor-level loan-officer concentration in excess of counterfactual loan-officer choice, referred borrowers pay 18.4 basis points more ($2,585 upfront), with larger premia for Hispanic, Black, and financially constrained households. Referrals reduce search and increase loan officer pricing power both across and within lenders.