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Working Paper

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

Andreas Fuster,
Aurel Hizmo,
Lauren Lambie-Hanson,
James Vickery &
Paul Willen

Revised: March 2025

WP 21-20/R – Lower interest rates in 2020–2021 were not fully passed through to mortgage borrowers due to a sharp rise in intermediation markups. These higher markups reflect capacity constraints amplified by operational and labor market frictions.

A previous version of this working paper was originally published in May 2021.

We study the resilience of U.S. mortgage 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 and 2021, we find that a sharp increase in intermediation markups limited the pass-through 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 particularly boosts credit supply for the specific types of loans being purchased.

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The Pandemic Mortgage Boom

Natalie Newton &
James Vickery

Q3 & Q4 2022

Economic Insights — We learn a lot about the mortgage market by understanding why it defied expectations and thrived under COVID-19.

Economic Insights

Mortgage Markets

Article

Frictions, Constraints, and Abnormalities: Limits on the Supply of Residential Mortgages During the COVID Pandemic

Research in Focus — Mortgage lending surged in the pandemic's first year. But lower interest rates weren’t fully passed through to consumers, and access to credit diminished for the riskiest borrowers.

Research in Focus

Mortgage Markets

Brief

Recent Data on Mortgage Forbearance: Borrower Uptake and Understanding of Lender Accommodations

04 Mar ’21

This research brief examines data relating to mortgage forbearance using responses to the January 2021 COVID-19 Survey of Consumers conducted by the Federal Reserve Bank of Philadelphia’s Consumer Finance Institute.