Queuing, Service Time, and Price Dynamics in Residential Mortgage Lending

Akos Horvath and Benjamin S. Kay
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Akos Horvath: https://www.federalreserve.gov/econres/akos-horvath.htm
Benjamin S. Kay: https://www.federalreserve.gov/econres/benjamin-s-kay.htm

No 2026-017, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: Building on queuing theory, we develop and empirically validate a novel theoretical model of residential mortgage supply. Our model gives insight into how the stochastic arrival and sequential servicing of loan applications affect mortgage origination. The model provides closedform predictions for lenders’ optimal response to changes in the level and price elasticity of mortgage demand. Using confidential HMDA data, we estimate that a one standard deviation increase in mortgage demand raises mortgage rate spreads by 3 to 8 basis points, loan quantities by 20 to 32 percent, and application processing times by 3 to 5 days. We also provide empirical evidence for the model prediction that a higher elasticity of mortgage demand moderates price increases due to demand shocks, which can limit lenders’ exploitation of their market power.

Keywords: Mortgages; Market structure and competition; Prices; Production capacity (search for similar items in EconPapers)
JEL-codes: C23 C26 D24 D40 G21 L11 (search for similar items in EconPapers)
Pages: 31 p.
Date: 2026-03-23
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:102999

DOI: 10.17016/FEDS.2026.017

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