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.