Mimeo | 2013

Concentration in Mortgage Lending, Refinancing Activity, and Mortgage Rates

by David S. Scharfstein and Adi Sunderam


We present evidence that high concentration in local mortgage lending reduces the sensitivity of mortgage rates and refinancing activity to mortgage-backed security (MBS) yields. A decrease in MBS yields is typically associated with greater refinancing activity and lower rates on new mortgages. However, this effect is dampened in counties with concentrated mortgage markets. We isolate the direct effect of mortgage market concentration and rule out alternative explanations based on borrower, loan, and collateral characteristics in two ways. First, we use a matching procedure to compare high- and low-concentration counties that are very similar on observable characteristics and find similar results. Second, we examine counties where concentration in mortgage lending is increased by bank mergers. We show that within a given county, sensitivities to MBS yields decrease after a concentration-increasing merger. Our results suggest that the effectiveness of housing as a monetary policy transmission channel varies in both the time series and the cross section. Increasing concentration by one standard deviation above the mean reduces the overall impact of a decline in MBS yields by approximately 50%.

Keywords: Mortgages; Banking Industry; United States;


Scharfstein, David S., and Adi Sunderam. "Concentration in Mortgage Lending, Refinancing Activity, and Mortgage Rates." June 2013. Mimeo.