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Determinants of Commercial Mortgage Choice

Working paper #385
Timothy J. Riddiough

An analysis of the choice between conduit loans and traditional whole loans in commercial mortgages. The author compares conduit and whole loan programs, and discusses their differences and the effects of information technology on the mortgage choice problem. Conduit lending produces a more volatile source of funding in posted loan rates and more stability in terms of capital availability. The specific loan program characteristics associated with conduit lending are the greater ease of accessing loan program information, faster loan closing and broader selection. The longer-run implications are that higher quality borrowers will eventually disintermediate mortgage brokers due to improvements in information technology. This suggests that there will be fewer brokers working more efficiently with a larger number of borrowers. Consequently, deep as opposed to broad service provision is the inevitable result of advancing information technology and internet-based transactions.

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