The Time-Varying Price of Financial Intermediation in the Mortgage Market

Journal of Finance, Forthcoming

Swiss Finance Institute Research Paper No. 23-103

98 Pages Posted: 20 Jan 2017 Last revised: 3 Nov 2023

See all articles by Andreas Fuster

Andreas Fuster

École Polytechnique Fédérale de Lausanne; Swiss Finance Institute; Centre for Economic Policy Research (CEPR)

Stephanie Lo

NDVR

Paul Willen

Federal Reserve Bank of Boston - Research Department; National Bureau of Economic Research (NBER)

Multiple version iconThere are 3 versions of this paper

Date Written: July 23, 2023

Abstract

We introduce a new measure of the price charged by financial intermediaries for connecting mortgage borrowers with capital market investors. Based on administrative lender pricing data, we document that the price of intermediation is strongly driven by variation in demand, reflecting capacity constraints of mortgage originators. This positive co-movement of price with quantity reduced the pass-through of quantitative easing. We also find a notable upward trend in this price over 2008-2014, likely due to an increased legal and regulatory burden in the mortgage market. The trend led to an implicit cost to borrowers of nearly $100 billion over this period.

Keywords: mortgage finance, financial intermediation, monetary policy transmission, QE

JEL Classification: E44, E52, G21, L11

Suggested Citation

Fuster, Andreas and Lo, Stephanie and Willen, Paul S., The Time-Varying Price of Financial Intermediation in the Mortgage Market (July 23, 2023). Journal of Finance, Forthcoming, Swiss Finance Institute Research Paper No. 23-103, Available at SSRN: https://ssrn.com/abstract=2902542

Andreas Fuster (Contact Author)

École Polytechnique Fédérale de Lausanne ( email )

Quartier UNIL-Chamberonne
Bâtiment Extranef
CH-1015 Lausanne
Switzerland

Swiss Finance Institute ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Stephanie Lo

NDVR ( email )

24 Federal Street
Boston, MA 02110
United States

Paul S. Willen

Federal Reserve Bank of Boston - Research Department ( email )

600 Atlantic Avenue
Boston, MA 02210
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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