Working Paper: NBER ID: w28843
Authors: Andreas Fuster; Aurel Hizmo; Lauren Lambie-Hanson; James Vickery; Paul S. 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: No keywords provided
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 |
|---|---|
| Pandemic-related labor market frictions and operational bottlenecks (J29) | unusually inelastic credit supply (E51) |
| Government guarantees and quantitative easing (H81) | mortgage rates (G21) |
| Government guarantees and quantitative easing (H81) | credit supply (E51) |
| Pandemic (H12) | significant increase in intermediation markups (F65) |
| significant increase in intermediation markups (F65) | limited passthrough of low rates to borrowers (G21) |
| Elasticity of mortgage supply was abnormally low (E51) | contraction in credit supply for riskier borrowers (G21) |
| Technology-based lenders gained market share (G21) | less constrained by frictions (F12) |
| Federal Reserve's purchases of mortgage-backed securities (E52) | flow of credit in the conforming segment (G21) |
| Pandemic's effects on the mortgage market (E44) | structural frictions that limit interest rate passthrough to borrowers (E43) |