How Resilient is Mortgage Credit Supply? Evidence from the Covid-19 Pandemic

77 Pages Posted: 24 May 2021 Last revised: 20 Jul 2021

See all articles by Andreas Fuster

Andreas Fuster

Ecole Polytechnique Fédérale de Lausanne; Swiss Finance Institute; Centre for Economic Policy Research (CEPR)

Aurel Hizmo

Board of Governors of the Federal Reserve System

Lauren Lambie-Hanson

Federal Reserve Banks - Federal Reserve Bank of Philadelphia

James I. Vickery

Federal Reserve Bank of Philadelphia

Paul Willen

Federal Reserve Bank of Boston - Research Department; National Bureau of Economic Research (NBER)

Multiple version iconThere are 3 versions of this paper

Date Written: May 2021

Abstract

We study the evolution of US mortgage credit supply during the COVID-19 pandemic. Although the mortgage market experienced a historic boom in 2020, we show there was also a large and sustained increase in intermediation markups that limited the pass-through of low rates to borrowers. Markups typically rise during periods of peak demand, but this historical relationship explains only part of the large increase during the pandemic. We present evidence that pandemic-related labor market frictions and operational bottlenecks contributed to unusually inelastic credit supply, and that technology-based lenders, likely less constrained by these frictions, gained market share. Rising forbearance and default risk did not significantly affect rates on “plain vanilla” conforming mortgages, but it did lead to higher spreads on mortgages without government guarantees and loans to the riskiest borrowers. Mortgage-backed securities purchases by the Federal Reserve also supported the flow of credit in the conforming segment.

Suggested Citation

Fuster, Andreas and Hizmo, Aurel and Lambie-Hanson, Lauren and Vickery, James Ian and Willen, Paul S., How Resilient is Mortgage Credit Supply? Evidence from the Covid-19 Pandemic (May 2021). NBER Working Paper No. w28843, Available at SSRN: https://ssrn.com/abstract=3851846

Andreas Fuster (Contact Author)

Ecole Polytechnique Fédérale de Lausanne ( email )

Quartier UNIL-Chamberonne
Bâtiment Extranef
CH-1015 Lausanne
Switzerland

Swiss Finance Institute ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Aurel Hizmo

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Lauren Lambie-Hanson

Federal Reserve Banks - Federal Reserve Bank of Philadelphia ( email )

Ten Independence Mall
Philadelphia, PA 19106-1574
United States

HOME PAGE: http://sites.google.com/laurenlambiehanson

James Ian Vickery

Federal Reserve Bank of Philadelphia ( email )

10 Independence Mall
Philadelphia, PA 19106
United States
+12155746549 (Phone)

HOME PAGE: http://https://www.philadelphiafed.org/our-people/james-vickery

Paul S. Willen

Federal Reserve Bank of Boston - Research Department ( email )

600 Atlantic Avenue
Boston, MA 02210
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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