Why Mortgage Market Bailout Left Everyone Confused

In the U.S. mortgage market, what counts as good news for consumers isn’t always good news for investors, and vice-versa. The pandemic has scrambled those equations even more than usual. That’s meant disappointment for some homeowners and homebuyers, relief for others, strong gains for some investors and potential losses for others, as the mortgage market grapples with the impact of both the economy’s sudden contraction and government steps meant to cushion the shock.

When stay-at-home orders began in early March, prices on commercial properties fell as investors factored in empty malls and months without brick-and-mortar retail activity. That forced real estate investment trusts, which focus on commercial properties, to start selling off their most liquid mortgage-backed securities (MBS) to meet margin calls, driving yields up and further undermining the market. The U.S. Federal Reserve responded by announcing in mid-March that it would purchase “at least” $500 billion in U.S. Treasuries and $200 billion of mortgages backed by government agencies, so-called agency MBS.