Clogged Intermediation: Were Home Buyers Crowded Out?

Postcrisis policy interventions significantly increased the demand for mortgage refinancing, but there is an unexplored possibility that the surge in refinancing applications crowded out the supply of credit to home buyers. We examine two frictions that hamper financial intermediation and cause banks to substitute away from home purchase loans and toward refinance loans. Banks with limited risk capacity may prefer safer loans, and banks with limited operating capacity may prefer applications that require less processing time. We find that, following the 2008 financial crisis, banks constrained by these capacity limits rationed credit to home buyers while supplying more refinancing credit.