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The combination of mortgage origination capacity constraints and increased liquidity in the agency MBS
market has led creditors to focus on GSE
originations, which are quicker to close and are generally considered less risky than FHA-insured mortgages and loans originated in the private markets. In the short-run, these pandemic-related capacity constraints could cause the supply of mortgage credit to fall short of demand from otherwise creditworthy consumers who likely have the ability to repay. In response, creditors may impose credit overlays or, more commonly, increase pricing margins 86
for certain products that are timeconsuming to underwrite or for higherrisk consumers, including margin increases beyond the risk-based pricing adjustments typically charged in a market without creditor capacity constraints. Creditors may raise prices disproportionately for loans that either
take longer to close or have a lower probability of closing to compensate for the fact that such loans reduce a creditors total expected origination volume within a given time period.
Overall, these short-run responses to the pandemic-related capacity constraints could have the effect of temporarily pricing some creditworthy consumers out of the market or delaying their ability to obtain a mortgage they otherwise could repay.
Figure 2 illustrates the strong growth of GSE lending in recent months, showing GSE volume in the third quarter of 2020 was at 61.9 percent, up from 45.3 percent a year prior. By contrast, portfolio lending declined significantly to 19.6 percent in the third quarter of 2020, compared to 33.3
percent in the third quarter of 2019.
Private label securitizations declined to 1 percent from 1.8 percent a year prior, and even the FHA and VA share whose
MBS are beneficiaries of the Boards agency MBS purchases are down slightly to 17.4 percent from 19.5
percent a year prior.87
Even within the GSE and government markets, some consumers may face reduced access to credit, as capacity constraints cause mortgage originators to focus on consumers with the strongest credit.88 Figure 4 illustrates potential differences in new credit originated for consumers with credit scores above and below a 700 credit score in 2020.89 Year-over-year, mortgage balances for consumers with a credit score of at least 700 have increased by 10 percent by the end of 2020, while mortgage balances for consumers with a credit score below 700 have decreased by nearly 2 percent.
In contrast, the auto financing sector has a far smaller disparity that also remained more consistent throughout the year.

86 Pricing margins refer to the difference between the rate a creditor charges and the price at which a creditor can sell the loan in the secondary market.
In addition to risk-based pricing adjustments that are independent of any adjustments charged in the secondary market, a creditor may charge additional
margin to compensate for the time and expense of underwriting.
87 Id.
88 Natl Mortg. News, Opinion: The originations feast and credit famine Oct. 4, 2020, https

www.nationalmortgagenews.com/opinion/theoriginations-feast-and-credit-availability-famine on file.
89 Moodys Analytics Credit Forecast.

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Federal Register / Vol. 86, No. 42 / Friday, March 5, 2021 / Proposed Rules