Decomposing Underwriting Spreads for GSEs and Frequent Issuer Financial Firms

Abstract

This paper investigates the determinants of underwriting fees charged to active government-sponsored enterprises (GSEs) and financial industry borrowers on debt issuances, how such fees change over time, and how they vary with the characteristics of the debt, underwriting mechanism, and issuer. We pay particular attention to how risk factors generated by the actions of individual mortgage borrowers, and the financing strategies put in place by the GSEs, impact underwriting spreads. We find spreads paid by both GSEs and privately-held financial firms were significantly influenced by risk-related developments in the market for housing finance well before the advent of the housing crisis.