Working Paper

Incomplete Pass-Through in Mortgage Markets

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%.

JEL Classification: G21; J1; D63;

https://doi.org/10.21799/frbp.wp.2025.30

Bibliographic Information

Provider: Federal Reserve Bank of Philadelphia

Part of Series: Working Papers

Publication Date: 2025-10-08

Number: 25-60