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Incomplete Pass-Through in Mortgage Markets

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Abstract

This paper studies the May 2023 change in the conforming mortgage upfront guarantee fee schedule. Consistent with incomplete pass-through, lenders raise rejection rates and sell fewer loans to the GSEs when fees rise. For small-dollar mortgages (SDMs), pass-through is near zero and rejection rates are more sensitive to fee increases. This implies that the overall incomplete pass-through is partly driven by liquidity-constrained borrowers and that the inequality in mortgage access via higher rejection rates on SDMs is partly driven by lenders’ inability to pass costs onto SDM borrowers. Without offsetting effects from fee cuts, fee hikes reduced aggregate mortgage origination in 2023 by 8%.

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  • Natee Amornsiripanitch & Judith Ricks, 2025. "Incomplete Pass-Through in Mortgage Markets," Working Papers 25-30, Federal Reserve Bank of Philadelphia.
    • Handle: RePEc:fip:fedpwp:101906
    DOI: 10.21799/frbp.wp.2025.30
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • J1 - Labor and Demographic Economics - - Demographic Economics

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