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

Author

Listed:
  • 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))

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 “plainvanilla” 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

  • Andreas Fuster & Aurel Hizmo & Lauren Lambie-Hanson & James I. Vickery & Paul Willen, 2021. "How Resilient is Mortgage Credit Supply? Evidence from the Covid-19 Pandemic," Swiss Finance Institute Research Paper Series 21-41, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp2141
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    Cited by:

    1. William D. Larson & Christos Makridis & Chad Redmer, 2021. "Borrower Expectations and Mortgage Performance: Evidence from the COVID-19 Pandemic," FHFA Staff Working Papers 21-02, Federal Housing Finance Agency.
    2. Kristopher Gerardi & Lauren Lambie-Hanson & Paul S. Willen, 2022. "Lessons Learned from Mortgage Borrower Policies and Outcomes during the COVID-19 Pandemic," Policy Hub, Federal Reserve Bank of Atlanta, vol. 2022(9), July.
    3. Kristopher Gerardi & Lauren Lambie-Hanson & Paul S. Willen, 2021. "Racial Differences in Mortgage Refinancing, Distress, and Housing Wealth Accumulation during COVID-19," Policy Hub, Federal Reserve Bank of Atlanta, vol. 2021(6), pages 1-40, June.
    4. Andreas Fuster & Stephanie H. Lo & Paul S. Willen, 2024. "The Time‐Varying Price of Financial Intermediation in the Mortgage Market," Journal of Finance, American Finance Association, vol. 79(4), pages 2553-2602, August.
    5. Jakučionytė, Eglė & Singh, Swapnil, 2022. "Bowling alone, buying alone: The decline of co-borrowers in the US mortgage market," Journal of Housing Economics, Elsevier, vol. 58(PB).
    6. Ferilli, Greta Benedetta & Altunbas, Yener & Stefanelli, Valeria & Palmieri, Egidio & Boscia, Vittorio, 2024. "Fintech governance and performance: Implications for banking and financial stability," Research in International Business and Finance, Elsevier, vol. 70(PB).
    7. Abdul Rahman, Mohd Shahril & Awang, Mariah & Jagun, Zainab Toyin, 2024. "Polycrisis: Factors, impacts, and responses in the housing market," Renewable and Sustainable Energy Reviews, Elsevier, vol. 202(C).
    8. Tobias Berg & Andreas Fuster & Manju Puri, 2022. "FinTech Lending," Annual Review of Financial Economics, Annual Reviews, vol. 14(1), pages 187-207, November.
    9. Silva, Thiago Christiano & de Souza, Sergio Rubens Stancato & Guerra, Solange Maria & Tabak, Benjamin Miranda, 2023. "COVID-19 and bank branch lending: The moderating effect of digitalization," Journal of Banking & Finance, Elsevier, vol. 152(C).
    10. Diamond, William & Landvoigt, Tim & Sánchez, Germán Sánchez, 2025. "Printing away the mortgages: Fiscal inflation and the post-covid boom," Journal of Financial Economics, Elsevier, vol. 171(C).
    11. Sean Chanwook Lee & Omeed Maghzian, 2023. "Household Liquidity and Macroeconomic Stabilization: Evidence from Mortgage Forbearance," Working Papers 23-12, Federal Reserve Bank of Boston.
    12. Julia Fonseca & Lu Liu, 2024. "Mortgage Lock‐In, Mobility, and Labor Reallocation," Journal of Finance, American Finance Association, vol. 79(6), pages 3729-3772, December.
    13. Jude, Cristina & Levieuge, Grégory, 2025. "Doubling down: The synergy of CCyB release and monetary policy easing," Journal of International Money and Finance, Elsevier, vol. 155(C).
    14. Xiaoqing Zhou, 2025. "Financial Technology and the Transmission of Monetary Policy: The Role of Social Networks," Journal of Political Economy Macroeconomics, University of Chicago Press, vol. 3(1), pages 122-164.
    15. Andreas Fuster & David Lucca & James Vickery, 2023. "Mortgage-backed securities," Chapters, in: Refet S. Gürkaynak & Jonathan H. Wright (ed.), Research Handbook of Financial Markets, chapter 15, pages 331-357, Edward Elgar Publishing.
    16. Karen Pence, 2022. "Liquidity in the mortgage market: How does the COVID‐19 crisis compare with the global financial crisis?," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 50(6), pages 1405-1424, November.
    17. Horvath, Akos & Kay, Benjamin & Wix, Carlo, 2023. "The COVID-19 shock and consumer credit: Evidence from credit card data," Journal of Banking & Finance, Elsevier, vol. 152(C).
    18. Lara Loewenstein, 2021. "Why Wasn’t there a Nonbank Mortgage Servicer Liquidity Crisis?," Economic Commentary, Federal Reserve Bank of Cleveland, vol. 2021(15), pages 1-7, July.

    More about this item

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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