The Value of Intermediaries for GSE Loans

Joshua Bosshardt, Ali Kakhbod () and Amir Kermani ()
Additional contact information
Ali Kakhbod: University of California, Berkeley
Amir Kermani: University of California, Berkeley

No 23-01, FHFA Staff Working Papers from Federal Housing Finance Agency

Abstract: We analyze the costs and benefits of financial intermediaries on access to credit using confidential regulatory data on mortgages securitized by the government-sponsored enterprises (GSEs). We find evidence of lenders pricing for observable and unobservable default risk independently from the GSEs. We explain these findings using a model of competitive mortgage lending with screening in which lenders acquire information beyond the GSEs' underwriting criteria and retain a positive loss given default. The model shows that the discretionary behavior of lenders, relative to a counterfactual in which lenders passively implement the GSEs' underwriting requirements and price competitively, benefits some borrowers with high observable risk at the expense of the majority of borrowers. Finally, the model suggests that the observed differences between banks and nonbanks are more consistent with differences in their expected loss given default 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)
Pages: 97 pages
Date: 2023-03
New Economics Papers: this item is included in nep-ban and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.fhfa.gov/document/wp2301.pdf (application/pdf)
https://www.fhfa.gov/research/papers/wp2301 (text/html)

Related works:
Working Paper: The Value of Intermediaries for GSE Loans (2023)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hfa:wpaper:23-01

Access Statistics for this paper

More papers in FHFA Staff Working Papers from Federal Housing Finance Agency Contact information at EDIRC.
Bibliographic data for series maintained by William Doerner ().