The Time-Varying Price of Financial Intermediation in the Mortgage Market
Financial intermediaries in the U.S. mortgage market link household borrowers in the primary mortgage market with global investors through the secondary market for mortgage-backed securities (MBS). Mortgage market intermediation is a significant source of income for banks and a major cost to households when they buy or refinance a home. Spending on mortgage intermediation has taken on monetary policy relevance in recent years as household refinancing was a key tool of the FOMC. The authors use a new dataset and develop a new methodology to measure the price of intermediation in the U.S. mortgage market. They analyze how the price of intermediation varies, what factors drive this variation, and how it may affect the pass-through of monetary policy. The authors concentrate on the 2008–2014 period during which the Federal Reserve engaged in quantitative easing (QE) in order to drive down the cost of mortgages for U.S. consumers.