Working Paper: NBER ID: w31575
Authors: Joshua Bosshardt; Ali Kakhbod; Amir Kermani
Abstract: We analyze the costs and benefits of intermediaries for government-sponsored enterprise (GSE) mortgages using regulatory data. We find evidence of lenders pricing for observable and unobservable default risk independently from the GSEs. We then develop and estimate a model of competitive lending in which lenders have skin-in-the-game. Lenders reduce costs by acquiring information beyond the GSEs’ criteria but charge markups. On net, interest rates are higher compared to a counterfactual in which the GSEs’ criteria are implemented passively. 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: No keywords provided
JEL Codes: G21; G23; G5
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| lenders price for observable and unobservable default risk (G19) | interest rates (E43) |
| interest rates net of guarantee fees (E43) | ex-post defaults (G33) |
| GFE-induced interest rates (E43) | default rates (E43) |
| observed differences between bank and nonbank lenders (G21) | expected loss given default (G33) |