Anyone completing a course in microeconomics would find great difficulty applying what he or she learned about competition to the home mortgage market. The market meets the major requirement of a competitive market in having many buyers and many sellers, but the benefits associated with competitive markets are conspicuously lacking. Instead of the expected single price that barely covers the sellers’ costs and is available to all buyers, mortgage prices are all over the lot. Some borrowers pay competitive prices, but many pay more.

Why competition doesn’t work

The core reason that competition in the home mortgage market doesn’t generate the benefits that the textbooks lead us to expect is that most mortgage borrowers are required to select a lender before they know the price. No market will function well under that condition.

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