Concentration in Mortgage Lending, Refinancing Activity and Mortgage Rates

David Scharfstein and Adi Sunderam

No 19156, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We present evidence that high concentration in local mortgage lending reduces the sensitivity of mortgage rates and refinancing activity to mortgage-backed security (MBS) yields. A decrease in MBS yields is typically associated with greater refinancing activity and lower rates on new mortgages. However, this effect is dampened in counties with concentrated mortgage markets. We isolate the direct effect of mortgage market concentration and rule out alternative explanations based on borrower, loan, and collateral characteristics in two ways. First, we use a matching procedure to compare high- and low-concentration counties that are very similar on observable characteristics and find similar results. Second, we examine counties where concentration in mortgage lending is increased by bank mergers. We show that within a given county, sensitivities to MBS yields decrease after a concentration-increasing merger. Our results suggest that the strength of the housing channel of monetary policy transmission varies in both the time series and the cross section. In the cross section, increasing concentration by one standard deviation reduces the overall impact of a decline in MBS yields by approximately 50%. In the time series, a decrease in MBS yields today has a 40% smaller effect on the average county than it would have had in the 1990s because of higher concentration today.

JEL-codes: E44 E52 G21 G23 L85 (search for similar items in EconPapers)
Date: 2013-06
New Economics Papers: this item is included in nep-ban, nep-com, nep-mac and nep-ure
Note: AP CF IO ME
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (20)

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