Journal of Financial Services Research

, Volume 49, Issue 2–3, pp 265–280 | Cite as

Transparency in the Mortgage Market

  • Andrey PavlovEmail author
  • Susan Wachter
  • Albert Alex Zevelev


This paper studies the impact of transparency in the mortgage market on the underlying real estate market. We show that geographic transparency in the secondary mortgage market, which implies geographic risk based pricing in the primary market, can limit risk-sharing and make house prices more volatile. Ex ante, regions prefer opaque markets to enable insurance opportunities. We discuss the implications for risk based pricing and house price volatility more generally. In addition, we investigate the specific conditions under which competitive lenders would optimally choose to provide opaque lending, thus reducing volatility in the real estate market. We show that in general the opaque competitive equilibrium is not stable, and lenders have incentive to switch to transparent lending if one of the geographic regions has experienced a negative income shock. We propose market and regulatory mechanisms that make the opaque competitive equilibrium stable and insurance opportunities possible.


Housing finance Mortgage Transparency Opacity Real estate Insurance House price volatility 



Dr. Pavlov acknowledges financial support from the Social Sciences and Humanities Research Council of Canada. Dr.Wachter acknowledges the assistance from the Research Sponsors Program of the Zell/Lurie Real Estate Center at Wharton.


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Copyright information

© Springer Science+Business Media New York 2015

Authors and Affiliations

  • Andrey Pavlov
    • 1
    Email author
  • Susan Wachter
    • 2
  • Albert Alex Zevelev
    • 2
  1. 1.Beedie School of Business Simon Fraser UniversityVancouverCanada
  2. 2.The Wharton School University of PennsylvaniaPhiladelphiaUSA

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