Market Power in Mortgage Lending and the Transmission of Monetary Policy
AbstractWe present evidence that high concentration in mortgage lending reduces the sensitivity of
mortgage rates and refinancing activity to mortgage-backed security (MBS) yields. We isolate the direct effect of concentration 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 bank mergers increase concentration in mortgage lending. Within a county, sensitivities to MBS yields decrease after a concentration increasing merger. Our results suggest that the strength of the housing channel of monetary policy transmission varies in both the time series and the cross section.