A theory of credit bureaus

When both the buyer and seller have the potential to exercise opportunistic behavior some balancing of these mal-incentives must be found. Seller financing has the potential to work as a quality assurance device because the lien holder is clearly at risk when mortgaged property fails. The buyer is at risk in the amount of the down payment and installments if the property is abused. Credit bureaus act as arbitrators. Our model accurately predicts the shifting in contract terms to account for relative opportunism and the incidence of this contract based on changes in the relative costs and benefits.