This study investigates the effect of mortgage purchases by the government-sponsored enterprises (GSEs) on mortgage originators’ screening incentives. We find a discontinuous change in the acceptance rates at the conforming/jumbo cutoff, which indicates a higher acceptance rate for mortgages eligible to be purchased by the GSEs. This discontinuous change in the acceptance rates largely diminished after the GSEs increased their efforts in reviewing the purchased loans in year 2009. Our findings suggest that GSE mortgage purchases have unintended negative effects on mortgage originators’ screening incentives before the subprime mortgage crisis.

JEL classification: G21 G28
Keywords: Government-sponsored enterprise, conforming loan limit, moral hazard, screening incentive, regression discontinuity design​