Do intermediaries improve GSE lending? Evidence from proprietary GSE data

Joshua Bosshardt, Ali Kakhbod and Amir Kermani

Journal of Financial Economics, 2025, vol. 170, issue C

Abstract: We analyze the trade-offs of having intermediaries originate government-sponsored enterprise (GSE) mortgages using proprietary GSE data. We first find evidence of lenders pricing for observable and unobservable default risk independently of the GSEs. We then develop and estimate a model of competitive lending in which lenders have skin-in-the-game and conduct additional screening beyond the GSEs’ criteria. Lenders reduce costs via screening but also charge markups. On net, interest rates are higher compared to a counterfactual effectively without intermediaries. In an extension, the observed differences between banks and nonbanks are more consistent with differences in their skin-in-the-game rather than screening quality.

Keywords: Mortgage lenders; Underwriting risk; Overlays; Nonbanks (search for similar items in EconPapers)
JEL-codes: G21 G23 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:170:y:2025:i:c:s0304405x2500090x

DOI: 10.1016/j.jfineco.2025.104082

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