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.

This paper studies how tightening monetary policy transmits to the economy through the mortgage market and sheds new light on the distributional consequences at both individual and regional levels. We specifically examine the sharp increase in mortgage interest rates during 2022 and 2023. We find that almost all of the decline in mortgages compared to prior years was concentrated in loans that would have had a debt-to-income (DTI) ratio above underwriting thresholds. These effects are even more pronounced for minority and middle-income borrowers. Additionally, regions more affected by the thresholds exhibited greater reductions in mortgage originations, house prices , and consumption.