Liquidity in the Mortgage Market: How Does the COVID-19 Crisis Compare with the Global Financial Crisis?

Abstract

The liquidity strains that contributed to the meltdown of the mortgage market in the Global Financial Crisis (GFC) re-emerged in the Coronavirus 2019 (COVID-19) Crisis. Some of these strains were acute. For example, the dependence of mortgage real estate investment trusts (REITs) on short-term funding amplified market disruption in March 2020. However, other liquidity pressures had only minor repercussions for the overall mortgage market because of reforms since the GFC, a heavy government presence, and strong house prices. The lackluster performance of the private-label mortgage-backed securities market provides a glimpse of how the market might have performed in the absence of the heavy government presence.

Keywords: COVID-19, REIT, Term Asset-Backed Securities Loan Facility (TALF), Mortgage market, Mortgage servicers, Mortgage-backed securities (MBS)

JEL Classification: G21, G23, G28