Working Paper

Queuing, Service Time, and Price Dynamics in Residential Mortgage Lending

Abstract: Building on queuing theory, we develop and empirically validate a novel theoretical model of residential mortgage supply. Our model gives insight into how the stochastic arrival and sequential servicing of loan applications affect mortgage origination. The model provides closedform predictions for lenders’ optimal response to changes in the level and price elasticity of mortgage demand. Using confidential HMDA data, we estimate that a one standard deviation increase in mortgage demand raises mortgage rate spreads by 3 to 8 basis points, loan quantities by 20 to 32 percent, and application processing times by 3 to 5 days. We also provide empirical evidence for the model prediction that a higher elasticity of mortgage demand moderates price increases due to demand shocks, which can limit lenders’ exploitation of their market power.

JEL Classification: C23; C26; D24; D40; G21; L11;

https://doi.org/10.17016/FEDS.2026.017

Bibliographic Information

Provider: Board of Governors of the Federal Reserve System (U.S.)

Part of Series: Finance and Economics Discussion Series

Publication Date: 2026-03-23

Number: 2026-017