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What drives screening incentives in nonbank mortgage originators?

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  • Rohan Ganduri

Abstract

Nonbank mortgage originators, which operate through the originate‐to‐distribute (OTD) model, account for more than half of all the mortgage origination in the United States. However, less is known about which factors drive the quality of mortgage originations through nonbanks. I show that an exogenous shock that reduced collateral risk for funding intermediaries of nonbank mortgage originators led to a greater issuance of riskier mortgages that culminated in 10–30% higher ex post defaults. These results show how the quality of mortgage origination in the OTD model of nonbanks is affected by the collateral risk borne by their funding intermediaries. Overall, the results highlight funding intermediaries' monitoring incentives as one of the factors that drive the quality of mortgage originations through nonbanks.

Suggested Citation

  • Rohan Ganduri, 2023. "What drives screening incentives in nonbank mortgage originators?," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 51(6), pages 1321-1355, November.
    • Handle: RePEc:bla:reesec:v:51:y:2023:i:6:p:1321-1355
    DOI: 10.1111/1540-6229.12456
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