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Research Publication

Low Balance Lending Economics: The Role of the Spec Pay-up

December 8, 2023
Bryant Bednarek
Bryant Bednarek

Advisor, Capital Markets - Single-Family Products

Jaclene Begley
Jaclene Begley

Economist, Fannie Mae

Devang Doshi
Devang Doshi

Senior Vice President, Capital Markets - Single-Family Products

Mark Palim
Mark Palim

Senior Vice President and Chief Economist

Nick Sapirie
Nick Sapirie

Fannie Mae Vice President, Capital Markets – Single-Family Products

Fannie Mae's Economics and Strategic Research and Single-Family Capital Markets teams published a working paper introducing a new methodology that estimates and decomposes lender revenue for Fannie Mae guaranteed loans. Leveraging unique data, the authors reveal noteworthy insights into the relationship between individual loan economics and lender behavior. Among the new insights, the paper illustrates that the specified pay-up is critical to improving the economics of lower balance loans for lenders, which in turn improves access to credit for underserved borrowers. This market-based dynamic highlights how investor interests can support access to homeownership for underserved borrowers and families.

Low Balance Lending Economics: The Role of the Spec Pay-up (PDF)