Working Paper: CEPR ID: DP16110
Authors: Andreas Fuster; Aurel Hizmo; Lauren Lambie-Hanson; James Vickery; Paul Willen
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.
Keywords: mortgage credit; financial intermediation; fintech; covid-19
JEL Codes: G21; G23; G28
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| sustained increase in intermediation markups (E44) | limited passthrough of low rates to borrowers (G21) |
| pandemic-related labor market frictions and operational bottlenecks (J29) | unusually inelastic credit supply (E51) |
| technology-based lenders gaining market share (G21) | limited impact of operational frictions (F69) |
| Federal Reserve's MBS purchases (E52) | supported mortgage credit supply (E51) |
| forbearance and default risk (G33) | higher spreads on riskier loans (G21) |