Mortgage Lender Profitability and Its Impacton Market Spreads

Abstract

Persistent increases in mortgage origination costs affect both lender profitability and borrower costs. This article examines these trends and quantifies the impact of increased loan production expenses on primary–secondary spreads. An important implication for investors and analysts is that persistently wider spreads may dampen prepayment responses for a given change in secondary market rates relative to historical experience.