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

Abstract

We study the resilience of USmortgage credit supply during the COVID-19 pandemic— the most significant shock since the financial crisis—and draw out broader lessons about the functioning of this important market. While mortgage lending boomed in 2020-21, we find that a sharp increase in intermediation markups limited the passthrough of low rates to households. We link this increase in markups to capacity constraints amplified by pandemic-related operational and labor market frictions. We also present new evidence that capacity constraints in the mortgage market are national in scope and have not yet been significantly mitigated by recent technological change. Nonbank lenders, often thought to be fragile, gained market share from banks but remain reliant on securitization. We also find evidence that government credit guarantees support the flow of credit to risky borrowers but are not always sufficient, and that quantitative easing boosts supply particularly for the types of loans being purchased.

Keywords: mortgage, credit, financial intermediation, fintech, COVID-19, nonbanks

JEL Classification: G21, G23, G28