Where is mortgage money going to come from?

David Goldsmith

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Banks make Mortgage loans (originations) and then bundle them up and sell them to get more money to lend. Most of this ends up in huge pools which are sold as Mortgage Backed Securities (MBS). Back when the last financial crisis occured it was largely because these type of bundled debt instruments started failing and they became Kryptonite which investors wouldn't touch anymore.

So the market wouldn't collapse The Federal Reserve stepped in and became the buyer of these MBS to prevent a bottleneck where consumers couldn't get mortgages because there were no funds. Through 2018 the Fed bought huge amounts of MBS:

Then in 2018 they stopped because investors confidence had changed and they were buying again. Now we have another credit crisis due to Coronavirus panic and other financial issues, and the Fed has stepped in again. As an emergency measure Fed Chairman Powell announced dropping interest rates to close to zero and that the Fed would be purchasing $200 billion in MBS:

That's about 2.6% of the $7.5 trillion market. How much liquidity is that really going to provide if everyone else stops buying?

"Mortgage Originations Hit Post-Crisis High in 2019
January 23, 2020John Bancroft
Lenders generated a hefty $2.375 trillion of first-lien home loans last year, the strongest the market’s been since 2006. Volume was up 8% from the third to the fourth quarter, but not all lenders took advantage of the refi wave."

So $200 billion represents about 1 month of new mortgage generations. Is the Fed prepared to do this every month? If not, where is the money going to come from for new mortgage originations?


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There was a great commercial during the 2016 election that showed a group of Chinese in a conference room speaking in Chinese laughing about "owning" the United States. All I can say is that I am glad a speak enough Chinese to be able to get a job in the next phase as a domestic worker for our potential overlords.

David Goldsmith

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“It’s going to be a liquidity tsunami:” Mortgage firms gear up for missed payments
Nonbanks lenders could be on hook for $100B in event of widespread loan forbearance

Nonbank mortgage lenders could be left holding the bag for as much as $100 billion in late payments (Credit: iStock)
While historically low interest rates may present a golden opportunity for the issuance of new mortgages, the economic disruption caused by the coronavirus pandemic spells trouble for millions of existing mortgages as borrowers fall behind on payments.
If one quarter of borrowers seek “forbearance” agreements allowing them to push back mortgage payments by six months or more, the Mortgage Bankers Association estimates that mortgage companies will be on the hook for at least $75 billion on short notice, and possibly more than $100 billion.
“It’s going to be a liquidity tsunami,” Mr. Cooper CEO Jay Bray told the Wall Street Journal. Mr. Cooper, along with Quicken Loans, is one of the largest such nonbank lenders, which have ramped up their involvement in the home loan market following the financial crisis.

David Goldsmith

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Businesses Can’t Pay Rent. That’s a Threat to the $3 Trillion Commercial Mortgage Market.

Delaying payments during coronavirus closings could ward off bankruptcies and layoffs, but hit landlords and their banks

Shortly after James Wacht shut down his two gyms for children in Brooklyn last week, he sent letters to his landlords asking for rent relief.

He has a successful business, he wrote to the building owners, but only limited cash reserves. To continue paying staff, he needed a break on his rent bill.

As the spread of the coronavirus upends the economy, forcing restaurants, movie theaters, gyms and offices to close, many businesses across the country are likely to stop paying rent on April 1.

Delaying or skipping rent payments offers a lifeline to struggling businesses and could ward off some bankruptcies and layoffs. Some, like Mr. Wacht, will try to renegotiate their leases. Many others won’t mail in their rent checks, daring landlords to evict them at a time when finding another tenant is almost impossible, and a number of U.S. cities have put a moratorium on evictions. Still others are simply liquidating.

But if missed payments could help keep some businesses alive and employees paid, they could come at a price for the banking sector and economy. Lacking rental revenue, many property owners could default on their mortgages—forcing banks, already struggling with the pandemic’s fallout, to write down loans and raise capital to cover for their losses.

Real-estate stocks have been among the hardest hit in the recent market rout, reflecting investor concerns that property values could fall. Commercial mortgage debt has increased to nearly $3 trillion, up by 33% from its low eight years ago and well above its 2008 levels, according to the Federal Reserve Bank of St. Louis.
Some of the market’s big-name investors are now zeroing in on commercial mortgages as a stress point in the financial system.
“You’re going to have this blow up, too, and nobody’s even looking at it,” billionaire investor Carl Icahn said on CNBC earlier this month, referring to commercial real estate. He is shorting bonds tied to commercial mortgage debt, and the surge in these property loans in recent years reminds him of the pre-2008 housing bubble, he added.

Thomas Barrack, chief executive of real-estate fund manager Colony Capital Inc., warned of a “potential blockage” in the commercial mortgage market as stable properties suddenly no longer generate cash flow.
“Addressing this major looming crisis in liquidity in a coordinated manner will be essential in averting a crisis in credit and a long-term economic recession,” Mr. Barrack wrote in a Medium blog post on Sunday.

The difficulties aren’t confined to retail. Landlords and brokers say they are also seeing a flood of office users asking for rent relief, particularly among small businesses.
For his part, Mr. Wacht was just trying to keep his gym classes going. But when New York City closed public schools on March 16, he and his son Evan, who together run the gyms for infants to 7-year-olds, shut the doors as well.
Then Mr. Wacht made a choice: “We’re going to keep staff on payroll as long as we can, but we can’t do that and pay full rent,” he said.

Mr. Wacht, who also serves as president of real-estate services firm Lee & Associates NYC, sent letters to his landlords that same day. He said one responded that he needs time to think about it. The other hadn’t responded as of Friday.

“There’s no retail tenant who hasn’t contacted their landlord already,” said Bradley Mendelson, vice chairman at real-estate brokerage Colliers International. Many landlords, he said, have a similar response: “If you don’t pay your rent, I can’t pay my mortgage.”

Some business owners said they had to make tough decisions between keeping their staff or paying their April rent. Moonlynn Tsai, who owns Kopitiam NYC, a restaurant selling Malaysian food, said her landlord rejected her request for relief.

“They’re not helping out. I was told to wait another month to see how it goes. We had to let go of our entire team,” said Ms. Tsai, adding that she has set up a takeout window but sales aren’t enough. She had to lay off 22 full-time and part-time employees.

Still, brokers say tenants have plenty of leverage in times of economic distress, and it helps that some cities are putting a moratorium on evictions.

Lease contracts often contain clauses that allow tenants to skip rent payments if they can’t access their space, said Jeffrey Schwartz, a lawyer at SSRGA. Some may make this argument if a government order forces them to stay at home. Insurance policies may pay for some losses, but brokers and landlords say they generally don’t cover pandemics.

Some landlords said they are considering flexible payment options, including allowing delayed payments in exchange for something in return. This could be an extension of the existing lease, more details about the retailer’s cash flow and financial records, or a modification of something that isn’t landlord-friendly in the existing lease.

“I hope everyone will look at this from a partnership point of view,” said Chris Weilminster, chief operating officer of Urban Edge Properties, a shopping center landlord


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Anyone thinking this pandemic is going to last for a year or longer.....should be buying land and guns in Virginia.
Anyone thinking this is going to be over in 6 months or less......should be buying any reit they can.

I'm super overweight $WPG as i think people will be shopping before the summer and because of the ridiculously oversized short position. But hey....what do i know and YMMV.

David Goldsmith

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As forbearance wave hits, real estate industry begs Fed to take action
Several large trade groups want a Federal liquidity facility

The commercial real estate industry is asking the federal government to buy bonds, assets, or lend money to mortgage banks as forbearance requests pile up.
Some of the industry’s biggest trade groups signed a letter asking the Federal Reserve to create what’s called a liquidity facility to support lenders and free up cash flow, according to Inman.
In this case, it could mean the government buys a lender’s bonds or loans money directly to the lender, among other options.
The National Association of Realtors, the Mortgage Bankers Association and the National Association of Home Builders are among the signers.
They argue that a liquid facility is needed so banks can provide forbearance and other relief measures to homeowners and residential landlords who will have trouble making payments. Many have been asked to provide up to 90 days forbearances to borrowers.
“…the final piece of the puzzle… [would] ensure that the entire industry can deliver much-needed economic relief to consumers through this unprecedented forbearance plan,” the letter read.
Some in the industry say the federal government’s $2 trillion CARES Act coronavirus relief measure doesn’t do enough for landlords.

Some government agencies have taken their own measures to support lenders, including non-bank lenders.
Fannie Mae and Freddie Mac will give their own borrowers a break on mortgages if they do not evict tenants during the pandemic.

David Goldsmith

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Requests to delay mortgage payments jump nearly 2,000% as borrowers seek relief during coronavirus outbreak

  • Forbearance requests grew by 1,270% between the week of March 2 and the week of March 16.
  • They jumped another 1,896% between the week of March 16 and the week of March 30, according to numbers just released by the Mortgage Bankers Association.
  • It is also getting more difficult for borrowers to get through to their mortgage servicers to make these forbearance requests.
Mortgage payments for the month of April are not even officially late until the 15th, but borrowers are flooding into the government's mortgage forbearance program.
Requests to delay mortgage payments grew by 1,270% between the week of March 2 and the week of March 16, and another 1,896% between the week of March 16 and the week of March 30, according to numbers released Tuesday by the Mortgage Bankers Association. It includes data on 22.4 million loans serviced as of April 1, almost 45% of the first lien mortgage servicing market.

The Cares Act, which President Donald Trump signed March 27, seeks to limit the economic damage from COVID-19. The government implemented the mortgage relief measures before Trump signed the bill. It mandates that all borrowers with government-backed mortgages — about 62% of all first lien mortgages according to the Urban Institute — be allowed to delay at least 90 days of monthly payments and possibly up to a year's worth. Those payments must ultimately be remitted either at the end of the loan term or in a structured modification plan.
For the week of March 23 through March 29, caller requests numbered 218,718. That number jumped to 717,577 requests in the following week, according to a Mortgage Bankers Association calculation. Mortgage servicers are required to grant forbearance to any borrower who requests it with no documentation of hardship necessary.
Among the loans sampled, from March 2 to April 1, total loans in forbearance grew from 0.25% to 2.66% of total servicing portfolios. Ginnie Mae loans in forbearance had the highest volume and grew most significantly from 0.19% to 4.25%. These loans, which represent FHA and VA loans, generally have lower down payments and are granted to borrowers with lower credit scores.
It is also getting more difficult for borrowers to get through to their mortgage servicers to make these forbearance requests. Call center average speed to answer reached 17.5 minutes from under two minutes three weeks ago. About 25% of borrowers are abandoning the calls compared with 5% three weeks ago.

David Goldsmith

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Millions of households are no longer making mortgage payments
A new report shows the number of home loans in forbearance has soared in the last month

An industry survey shows that the percentage of home loans in forbearance has risen 15-fold over the past month — and is expected to rise further. (Credit: iStock)
As unemployment soars and the economy slows, millions of U.S. households are no longer making their monthly mortgage payments.
Data from the Mortgage Bankers Association shows that about 3.74 percent of home loans were in forbearance as of the first week of April, up from 2.73 percent a week prior — and from just 0.25 percent at the beginning of March.
“With mitigation efforts seemingly in place for at least several more weeks, job losses will continue and the number of borrowers asking for forbearance will likely continue to rise at a rapid pace,” MBA chief economist Mike Fratantoni said in a statement.
(% of Servicing Portfolio Volume in Forbearance by Investor Type over Time. Source: Mortgage Bankers Association)

% of Servicing Portfolio Volume in Forbearance by Investor Type over Time. Source: Mortgage Bankers Association
The percentage of loans in forbearance represents about two million homeowners. MBA’s data is based on a survey covering about 27 million loans, slightly over half of the total number of home loans in the country.
Among the different types of loans surveyed, mortgages backed by Ginnie Mae experienced the highest forbearance rate at 5.89 percent. Independent mortgage lenders are also facing more pressure than traditional banks.
MBA previously projected that mortgage servicers could be on the hook for as much as $100 billion in loan payments if forbearance continues to rise. Loan losses have also led to a 69-percent year-over-year decline in quarterly profit for JPMorgan Chase, the Wall Street Journal reported.

While the $2 trillion stimulus package allowed homeowners to suspend mortgage payments for up to 12 months, it provided no support for mortgage servicers to meet their obligations. MBA and other industry groups have pushed for the Federal Reserve to create an emergency lending facility for the industry.

David Goldsmith

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Nearly 6% of home loans are now in forbearance
Calls for help to services dropped during the study’s time frame

Covid-19 has led to a sharp increase of the amount of loans in forbearance, reaching 6% by mid-April, according to data from the Mortgage Bankers Association (Credit: iStock)
The number of mortgages where borrowers are putting off payments has seen a stark increase, according to new data from a financial industry group.
For the week ending April 12, 5.95 percent of home loans in servicers’ portfolio volume were in forbearance, up from 3.74 percent the week before that, according to the Mortgage Bankers Association’s latest Forbearance and Call Volume Survey. The group’s survey represents almost 77 percent of the first-mortgage servicing market, or 38.3 million loans.
“With over 22 million Americans filing for unemployment over the past month, homeowners are contacting their mortgage servicers seeking relief, leading to a sharp increase in the share of loans in forbearance across all loan types,” Mike Fratantoni, MBA’s senior vice president and chief economist, said in a statement.
While mortgage servicers still saw a high level of forbearance requests during the second week of April, Fratantoni said, calls from borrowers dropped to 8.8 percent of servicing portfolio volume from 14.4 percent. The number of requests for forbearance also dropped over the week, and the amount of time people waited to reach a servicer also dropped during the second week of the month — a change from the prior weeks-long trend.
But more requests for assistance are likely on the way.

“Given that lockdowns and associated job losses will continue in the coming weeks, forbearance inquiries will likely rise again as we approach May payment due dates,” Fratantoni said.
The number of loans that have entered forbearance has risen sharply as the Covid-19 pandemic continues to force closures of business, public spaces and schools. For instance, for the week of March 2, prior to the government-mandated shutdowns in the U.S., just 0.25 percent of loans were in forbearance, according to MBA.

David Goldsmith

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Fannie, Freddie will buy loans in forbearance — for a pricey fee
The Federal housing agency’s move will lift pressure off mortgage companies

Struggling mortgage firms have been thrown a lifeline.

The Federal Housing Finance Agency announced Wednesday that firms saddled with loans they would usually offload can now sell them to Fannie Mae and Freddie Mac.

“Purchases of these previously ineligible loans will help provide liquidity to mortgage markets and allow originators to keep lending,” Mark Calabria, director of the FHFA, said in a statement to the Wall Street Journal.

While industry players welcomed the news — nearly 6 percent of homeowners are now in forbearance — some said the fees associated with the purchase, which ranged from 5 to 7 percent of the loan’s value, were too high.

“The new fees attached to the sale of loans may be cost-prohibitive for many credit unions and limit affordable loan options for home buyers,” Dan Berger, chief executive of the National Association of Federally Insured Credit Unions, told the Journal in a statement.

Under the federal government’s stimulus program, homeowners with federally backed mortgages had been offered the chance to enter forbearance, or to pause monthly payments for as long as a year if they were experiencing financial distress.

But the law was vague about what would happen after the relief period was over, and some mortgage holders said they were being told to expect bills for lump-sum payments.

David Goldsmith

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Second wave: Mortgage lenders face more chaos after forbearance ends
Fannie Mae, Freddie Mac working on plan to alleviate repayment confusion

As requests for mortgage forbearance ballooned in April, mortgage servicers — and their call centers — experienced an avalanche of inquiries. But that might be the easy part.

The real chaos could be six months down the road when homeowners try to resume payments, Bloomberg reported. Confusion around repayment policy could lead to piles of paperwork, serious delays, and even foreclosures.

Sources told the publication that Fannie Mae, Freddie Mac and the Federal Housing Finance Agency are working on a program to alleviate those problems. The agencies declined to comment on plans, but Obama administration senior housing adviser Michael Stegman said Americans should “expect even more chaos when forbearance ends” unless drastic changes are made.

During the 2008 crisis, borrowers seeking forbearance were required to provide documentation up front, which led to delays and confusion. Homeowners were able to avoid such issues this time around because they only had to say they were experiencing hardship.

While some lenders have told borrowers that back payments will be due as a lump sum after the forbearance period — which some sources suspect is a ploy to discourage forbearance requests — the Federal Housing Administration says it will treat missed payments as a second lien on the property to be paid off later.

Fannie and Freddie have said borrowers may pay back the forbearance over 12 months. If they are unable to do so, borrowers will need to apply for loan modifications that sources said could lead to 2008-style processing delays.

Mortgage Bankers Association CEO Bob Broeksmit said he expects Fannie and Freddie to announce a new repayment option in the next two weeks. “Hopefully this new option will not be overly complex and can work for a lot of borrowers,” he said.

David Goldsmith

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Mortgage Defaults Could Pile Up at Pace That Dwarfs 2008

Mortgage lenders are preparing for the biggest wave of delinquencies in history. If the plan to buy time works, they may avert an even worse crisis: Mass foreclosures and mortgage market mayhem.

Borrowers who lost income from the coronavirus -- already a skyrocketing number, with a record 10 million new jobless claims -- can ask to skip payments for as many as 180 days at a time on federally backed mortgages, and avoid penalties and a hit to their credit scores. But it’s not a payment holiday. Eventually, they’ll have to make it all up.

As many as 30% of Americans with home loans – about 15 million households –- could stop paying if the U.S. economy remains closed through the summer or beyond, according to an estimate by Mark Zandi, chief economist for Moody’s Analytics.

“This is an unprecedented event,” said Susan Wachter, professor of real estate and finance at the Wharton School of the University of Pennsylvania. “The great financial crisis happened over a number of years. This is happening in a matter of months -- a matter of weeks.”

Meanwhile, lenders are operating in the dark, with no way of predicting the scope or duration of the pandemic or the damage it will wreak on the economy. If the virus recedes soon and the economy roars back to life, then the plan will help borrowers get back on track quickly. The greater the fallout, the harder and more expensive it will be to stave off repossessions.

‘Press Pause’
“Nobody has any sense of how long this might last,” said Andrew Jakabovics, a former Department of Housing and Urban Development senior policy adviser who is now at Enterprise Community Partners, a nonprofit affordable housing group. “The forbearance program allows everybody to press pause on their current circumstances and take a deep breath. Then we can look at what the world might look like in six or 12 months from now and plan for that.

Even if the economic turmoil is long-lasting, the government will have to find a way to prevent foreclosures -- which could mean forgiving some debt, said Tendayi Kapfidze, Chief Economist at LendingTree.

The risks of allowing foreclosures are too great because it would damage financial markets and that could reinfect the economy, he said.

Up to 30% of home borrowers may need help, topping last crisis peak

Up to 30% of home borrowers may seek forbearance, topping the last crisis, according to Mark Zandi of Moody’s Analytics
Bloomberg data from Mortgage Bankers Association
“I expect policy makers to do whatever they can to hold the line on a financial crisis,” Kapfidze said. “And that means preventing foreclosures by any means necessary.”

Laura Habberstad, a bar manager in Washington, D.C., got a reprieve from her lender but needs time to catch up. The coronavirus snatched away her income, as it has for millions, and replaced it with uncertainty. The restaurant and beer garden where she works was forced to temporarily shut down.

She has no idea when she’ll get her job back. And how do you search for another hospitality job during a global pandemic? Now she’s living in Oregon with her mother, whose travel agency was forced to close.

‘Financial Hardship’
“I don’t know how I’m going to pay my mortgage and my condo dues and still be able to feed myself,” Habberstad said. “I just hope that, once things open up again, we who are impacted by Covid-19 are given consideration and sufficient time to bring all payments current without penalty and in a manner that does not bring us even more financial hardship.”

Borrowers must contact their lenders to get help and avoid black marks on their credit reports, according to provisions in the stimulus package passed by Congress last week.

Bank of America said it has so far allowed 50,000 mortgage customers to defer payments. That includes loans that are not federally backed, so they aren’t covered by the government’s program.

Treasury Secretary Steven Mnuchin convened a task force last week to deal with the potential liquidity shortfall faced by mortgage servicers, which collect payments and are required to compensate bondholders even if homeowners miss them. The group was supposed to make recommendations by March 30.

If a large percentage of the servicing book -- let’s say 20-30% of clients you take care of -- don’t have the ability to make a payment for six months, most servicers will not have the capital needed to cover those payments,” Quicken Chief Executive Officer Jay Farner said in an interview.

Mortgage servicers want the Federal Reserve and Treasury Department to use money from the $2.2 trillion stimulus plan to help them avoid a liquidity crisis as fewer borrowers make payments, and the firms are forced to continue paying bondholders.

But members of Mnuchin’s Financial Stability Oversight Council have discussed holding off on setting up such a program to see if other policies put in place recently effectively ease liquidity shortfalls, according to people familiar with the discussions who requested anonymity because the talks are private.

Triple Workers
Quicken, which serves 1.8 million borrowers, has a strong enough balance sheet to serve its borrowers while paying holders of bonds backed by its mortgages, Farner said.

The company plans to almost triple its call center workers by May to field the expected onslaught of borrowers seeking support, he said.

If the pandemic has taught us anything, it’s how quickly everything can change. Just weeks ago, mortgage lenders were predicting the biggest spring in years for home sales and mortgage refinances.

Habberstad, the bar manager, was staffing up for big crowds at the beer garden, which is across from National Park, home of the World Series champions. Then came coronavirus. Now, she’s dependent on her unemployment check of $440 a week.

"Everybody wants to work but we’re being asked not to for the sake of the greater good,” she said.

David Goldsmith

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Mortgage bankers warn Fed mortgage purchases unbalanced market, forcing margin calls

The Mortgage Bankers Association in a dire letter to regulators Sunday warned that the U.S. housing market is “in danger of large-scale disruption,” due to efforts by the Federal Reserve that were intended to help rescue the mortgage market.

At issue are the Fed’s unprecedented $183 billion of purchases last week of mortgage-backed securities. The purchases were meant to drive down rates, and they did.

But together with the storm that gripped financial markets from the coronavirus, they also effectively blew up a widespread hedge that mortgage bankers use to protect themselves against rate increases. The hedge pays them if the prevailing rate in the market is higher than the mortgage rate they locked in with the customer.

The system works well unless mortgage rates are highly volatile. It is generally considered to be a safe trade: the hedge simply protects the lender against higher rates until the mortgage closes. But compounding the problem, many customers couldn’t close on their loans because of quarantines, leaving the mortgage lenders with only the cost of the hedge and no off-setting loan.

The huge volatility in mortgage bonds created massive margin calls from the broker-dealers, who wrote the hedges, to their mortgage bankers.

Some of these mortgage bankers are now facing margin calls of tens of millions of dollars that could drive them out of business, according to Barry Habib, founder of MBS Highway, a leading industry advisor who was among the first to publicly sound the alarm bell last week.

Hardest hit are independent mortgage bankers who wrote about 55% of the $2.1 trillion mortgages created last year and can have higher leverage.

In its letter to regulators, the MBA said: “The dramatic price volatility in the market for agency mortgage-backed securities [MBS] over the past week is leading to broker-dealer margin calls on mortgage lenders’ hedge positions that are unsustainable for many such lenders.”

The letter went on to say, “Margin calls on mortgage lenders reached staggering and unprecedented levels by the end of the week. For a significant number of lenders, many of which are well-capitalized, these margin calls are eroding their working capital and threatening their ability to continue to operate.”

Some lenders, the letter said, may not be able to meet their margin calls in a day or two.

The Fed came into the mortgage market forcefully two weeks ago when rates began to rise because a large array of investors were selling mortgage securities to raise cash, in part, to offset big losses in the stock market. There was also fear that borrowers wouldn’t be able to pay.

In the week of March 16, the Fed bought $68 billion of mortgages. But the market still saw massive selling, prompting the Fed to come in with an additional $183 billion of purchases last week. The combined $250 billion in mortgage purchases by the Fed over two weeks was $84 billion more than the Fed had bought over any four-week period during the financial crisis in 2009.

Ironically, the MBA had urged the Fed to come in strongly to help the mortgage market. “We understand that when the Fed came into the market, they couldn’t come in surgically. They didn’t have a scalpel. They only have a sledgehammer,” MBA chief economist Micheal Frantantoni told CNBC.

The New York Fed appears to have adjusted its purchases in response to the industry outcry. It purchased $40 billion of mortgages Friday, $10 billion less than it planned to buy, and it plans to do another $40 billion Monday but could end up doing less.

“We are expecting the Fed to modulate their purchases,” Frantantoni said.

But Habib said the Fed needs to go further than just modulate.

“This is a collapse of the system,” Habib said. “It’s as simple as the Fed stops buying for a period of time.”

While CNBC has learned that the MBA has made its concerns known to the Fed and other regulators, the specific request in the MBA letter went to the Financial Industry Regulatory Authority and the Securities and Exchange Commission. The MBA asked for regulatory relief for the broker-dealers who provide the hedges. Regulators have recommended a best practices guideline to collect margin on any variation above $250,000.

The MBA asked FINRA and the SEC to issue guidance urging lenders not to escalate the margin calls to “destabilizing levels.”

David Goldsmith

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More than 7.5% of home loans in forbearance: MBA
That’s up from 5.9% less than a month ago; picture could worsen as millions file for unemployment

The share of home loans in forbearance grew last week, a situation that could worsen as millions file for unemployment.

Mortgages in forbearance plans made up 7.54 percent of servicers’ portfolios last week, according to figures released Monday by the Mortgage Bankers Association. That was up from 6.99 percent the week earlier and 5.95 percent for the week ending April 12.

Mike Fratantoni, MBA’s chief economist, said the pace of new requests slowed but noted that the market distress could worsen with millions of more Americans filing for unemployment.

“That is why we expect that the share of loans in forbearance will continue to grow, particularly as new mortgage payments come due in May,” Frantantoni said.

He added the silver lining is that as states across the nation start to re-open their economies, housing markets could start to see increased activity.

While the industry has been challenged by increased requests for forbearance, bigger problems may be coming six months down the line when homeowners have to resume payments.

David Goldsmith

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Mr. Cooper has nearly 200,000 customers in forbearance but is no longer worried about liquidity
Jay Bray: Forbearance could rise when May mortgage payments come due
Despite having nearly 200,000 of its customers in forbearance, the nation’s largest nonbank mortgage servicer is no longer concerned about having enough money to front the principal and interest payments it is required to send investors on loans in forbearance.
Mr. Cooper, the nonbank formerly known as Nationstar Mortgage, revealed Thursday that it currently has 194,118 customers in forbearance, which represents 5.6% of its total portfolio. That’s an increase of more than 100,000 customers from earlier this month.
Despite that increase, Mr. Cooper CEO Jay Bray told HousingWire Thursday that the company is prepared to cover servicing advances even if the number of borrowers in forbearance quadruples.
In its first quarter earnings information, the nonbank disclosed that it is preparing for as many as 20% of its 3.7 million customers to need forbearance, but Bray said that the take up rate is actually lower than the company originally expected.
Bray cautioned that the numbers could jump soon.
“Our current volumes are running below what we originally expected,” Bray told HousingWire Thursday. “And so, we’ll see. My theory is that you’re going to see these come in waves. I think you’ll see a lot coming in early May when the May payment comes due. But right now, you know the volume is less than what we projected.”
Despite that, Bray said that Mr. Cooper is now in a financial position to cover all the advances it could be required to make.
“On the liquidity side, we’ve solved that equation,” Bray said. “We’ve gotten additional capacity from a couple different lenders, a total of $850 million in additional capacity from a borrowing standpoint. So, frankly in any kind of scenario that we can see, we think we’re in good shape.”
Despite that, Bray still thinks that the government or Federal Reserve may still need to step in and provide other servicers with a liquidity facility even after Fannie Mae and Freddie Mac’s recent announcement that servicers will only be required to cover four months of missed payments.
“The forbearance plan that exists today is something that we’re big supporters of,” Bray said. “We worked with Fannie, Freddie and all the others to get it in place. Early on, we advocated pretty strongly for a program through the Treasury or Fed, just because we felt like that was the best thing for the industry. And when we look at the possible numbers on the forbearance plans that could happen, I still think that is something that would be good for the industry.”
Bray commended the work that the GSEs have done thus far to support the mortgage industry.
“Fannie and Freddie have been amazing partners and we speak to them daily and they’ve been truly accessible, responsive and proactive in helping us work through it,” Bray said.
“The FHFA coming out and clarifying the four months was good,” he said. “We had expected that because obviously we’re in constant communication with (the GSEs), but making it official, I think was a great thing. It brings clarity for potential lenders. Obviously, this brings clarity to us from an operational standpoint in liquidity and capacity planning. We were very happy to see that come out official.”
According to Bray, Mr. Cooper is now in position to not need to lean on government sources for funding, whether it’s a Treasury or Fed facility or Ginnie Mae’s program.
“I think there’s a little confusion in the marketplace, right? Because if you look at the solutions that are out there today, you have the Ginnie Mae program, PTAP, which is a good thing,” Bray said. “For us, that’s more like a backstop, but it’s a good thing for the industry.”
Other companies may need it, though.
“There’s still, I think, a need for the medium or small players for some more solutions,” Bray continued. “I think it’s still the right thing for the industry. I think the (Mortgage Bankers Association) is going to continue to advocate for it and we’re supportive of that.”
“It’s something that we don’t need,” he said. “But, again, from an industry standpoint, I still get it’s something MBA should still advocate for and we’re supportive of.”
As for whether the Fed and/or Treasury are going to provide that much-asked-for facility, Bray said that the government seems to be taking a “wait and see” approach on whether it will be necessary.
“I don’t have a great insight into it, but my sense is that it’s status quo,” Bray said when asked if he was aware of any movement towards a federal facility.
“I think it’s probably consistent with what you’ve seen in the past in that there’s a little bit of wait and see mentality,” Bray said. “I think people want to see what the May numbers look like. They want to see how many people are actually tapping into the Ginnie facility. I think there are plans in place and if they were needed, they’d implement them, but I still think it’s a wait and see mode.”
As for Mr. Cooper’s business itself, the company reported a net loss of $171 million in the first quarter, reflecting a negative $383 million mark-to-market on its servicing portfolio.
But the company’s mortgage originations were more than double what they were in the first quarter of last year.
According to the company, Mr. Cooper had total originations of $12.4 billion in the first quarter, up from $5.7 billion in the first quarter of 2019. Of that $12.4 billion, correspondent was responsible for $5.5 billion, consumer direct was responsible for $6.4 billion, and $500 million came from wholesale, which Mr. Cooper recently shut down.
Bray said that the company made the decision to shutter its wholesale channel so that the company could focus direct and correspondent.
“We didn’t feel like we could scale it to the degree we could scale the correspondent business and the direct to consumer business,” Bray said. “The thinking is, it’s better to do fewer things well than to spread ourselves too thin.”
When asked why the company’s originations were so much higher this year than last, Bray said it was all about refinances, which accounted for 74% of its originations in Q1.
Bray was also effusive in his praise for the work of his company’s staff, approximately 95% of which are now working from home.
“I’m so proud of what our team did to shift us to work from home,” Bray said. “Our productivity is quite good. On the origination side, it’s actually a little better than it was when we were in the office.”
And according to Bray, employees of the company, based in the Dallas metro area, are going to continue working from home for now.
Bray said that despite Texas Gov. Greg Abbott’s recent move to reopen Texas’ economy, Mr. Cooper’s employees will be home-based through at least June 1.
“We’re going to be a follower there, not a leader,” Bray said.
“Our primary concern is our team members and so we are communicating with our team members that you definitely will not be coming back into the office prior to June 1,” Bray continued.
“We’re going to go slow,” he said. “The health and safety of our team members is absolutely the first priority. We’re going to take all the precautions necessary.”

David Goldsmith

All Powerful Moderator
Staff member

The Forbearance Tsunami: 4.7 million mortgages are now in forbearance with an unpaid principal of $1 trillion.

Let us clear something up regarding the last financial crisis with housing at the center of the market unraveling. The vast majority of the foreclosures that happened in the Great Recession occurred on standard 30-year fixed rate mortgages. There is this mythology that only subprime and NINJA (no income, no job, no asset) loans were the culprit of the entire collapse. This narrative fits into the crony capitalist mentality that somehow, only losers caused the crisis and that of course all of the suckers that got lured into a toxic mortgage somehow deserved losing their homes (while banks of course got bailed out with billions of tax payer dollars). A swift kick to the poor, and corporate welfare for the banks. It almost fits into this modern psychology of dis-information and revisionist history that we are now seeing. So it should be no shock to rational individuals that now, we suddenly have a whopping 4.7 million mortgages in forbearance (aka not paying their mortgage payment). This is not a good thing. The assumption is that people are going to start paying their mortgages back on time once the virus goes away but is that the case with so many jobs being lost? First, let us show you some data on the previous crisis for those that somehow forgot who lost their homes based on the type of mortgage on the property.

Foreclosure crisis during the Great Recession

Here is some data from the National Bureau of Economic Research. What they found that while subprime borrowers did lose their homes first in the crisis, prime borrowers started dwarfing the subprime market through 2009 to 2012:

Why is that? First, the subprime borrowers lost their homes rather quickly but then those with standard mortgages still needed to make their mortgage payments and with no jobs or reduced incomes, they were unable to keep up as well. The chart above shows a very clear picture that while subprime mortgages caused a big problem, the impact was felt across many American households including those that took on mortgages under the “puritanical” guidelines that somehow are not brought up when looking back a decade ago. It should be noted that in every recession we face, you see a spike in foreclosures. And this is going to be a bad recession from the looks of it.

Now why is it important to understand this? First of all, the number of jobs lost in two months now has passed the number of jobs lost in the entire Great Recession. The fact that we now have 4.7 million Americans that have essentially paused their mortgage payments is startling. There are new guidelines in place that will allow these households to work with their servicers instead of doing an insane balloon payment in 3 or 6 months (how are you going to pay 6 months of backed up payments if you are having issues making one payment?). Fannie Mae, Freddie Mac, and the FHA are actually going to allow more creative options to pay your mortgage once the forbearance is over. Yet that is a big assumption that in 12-months, all of a sudden these 4.7 million household are going to be able to keep up with their regular payments assuming we recoup the insane numbers of jobs lost:

April saw a mind numbing 20.5 million jobs lost. That is the worst number of job losses in modern history. Yet somehow, housing is going to remain okay in this market where everything is getting hammered. The forbearance numbers simply reflect that this is not going to be a V-shaped recovery. People are struggling in this environment. Commercial real estate is getting smashed as well.

Let us add some more data. Between 2006 and 2014 (an eight-year window) 10 million Americans lost their homes to foreclosure. In a matter of two months, we now have nearly half of that figure of US households not making their mortgage payments.

This is going to have an impact on the housing market and like the Great Recession where subprime led the way initially, the downstream impacts from this hit to the system will be seen as the months go by.

David Goldsmith

All Powerful Moderator
Staff member

Tightening mortgage market threatens economic recovery
Refinancing rate remains low despite record-low interest rates

The Federal Reserve’s move to cut interest rates to near zero in mid-March was expected to give the housing market a much-needed boost. But things may not work that way.
The $2 trillion CARES Act, which allowed homeowners with loans backed by government agencies to request forbearance for up to a year, has had unintended consequences for the mortgage industry’s complex ecosystem, the Wall Street Journal reported. That may hamper the post-coronavirus economic recovery.

Major banks have moved to tighten standards on home loans, and the market for unconventional home loans has largely dried up. Although low interest rates had earlier led to expectations of a surge in mortgage lending, the volume of mortgage refinancings has not risen significantly — although loan applications for new home purchases have continued to rise.

Furthermore, mortgage rates are about one percentage point higher than expected given current Treasury-bond yields, another reflection of tightening in the mortgage market.
“It was a quick reaction to try to help people, but there are some serious negative effects that weren’t contemplated until just now,” Ian McDonald, a Fairway branch manager in Minnesota, told the Journal regarding the Cares Act.

McDonald is working with a client who’s homebuying plans were disrupted after he agreed to seek forbearance but backed out before missing any payments, leaving a negative mark on his credit report. Homebuyers with credit scores above 800 have also run into unprecedented hurdles due to tightened lender standards.

The Federal Housing Finance Agency has defended its policy moves. “Lenders’ lines of credit would have tightened and borrowers’ ability to get mortgages would have suffered” if it hadn’t acted, agency spokesman Raphael Williams told the Journal.

David Goldsmith

All Powerful Moderator
Staff member

NY, NJ homeowners more likely to be in mortgage forbearance
Kroll report found self-employment is also a strong predictor of requests for relief

The number of homeowners seeking forbearance for their mortgages has risen dramatically as a result of the coronavirus crisis, with the Mortgage Bankers Association finding more than 8 percent of home loans to be in forbearance as of mid-May. But what kinds of homeowners have been seeking relief on their loans?
A recent analysis by Kroll Bond Rating Agency provides some clues. The company ran a logistic regression analysis on about 22,000 mortgages across 47 residential mortgage-backed security transactions. It took into account attributes such as geography, interest rate, credit score and employment status to determine which factors had the greatest impact on the likelihood of forbearance requests.

The analysis found that geography plays a key role in determining which homeowners are more likely to request and accept a forbearance plan. A homeowner in New York was found to be three times as likely to have a mortgage in forbearance compared to an average “benchmark” borrower. That would be a wage earner in an owner-occupied property with a decent but not stellar credit score of 750, paying 4.25-percent fixed interest and living outside of California, New York, Florida, New Jersey, Texas, or Nevada.

New Jersey residents were also found to have significantly higher rates of forbearance, at 2.2 times the benchmark rate. Another key factor was being self-employed, which was found to double the probability of seeking and accepting a forbearance plan. Higher interest rates, having incomplete income documentation, or living in California also boosted the likelihood of forbearance, while credit score and cash reserves played a more minor role.
Because of the relatively small sample size of loans collected over a single month — April — Kroll’s report notes that “we believe these results are best viewed as informational indications of rank ordering and the direction (positive or negative) of effects and not as precise predictive measures.”

David Goldsmith

All Powerful Moderator
Staff member
It seems as if people have been telling me for quite a long time that we won't see another wave of foreclosures again because these types of risky loans haven't been made anymore in quite a while. But this article is saying that the jump in delinquencies now is being caused by borrowers which many have claimed are no long an issue because "we stopped making those kind of loans after the Financial Crisis." Apparently that isn't true.
Mortgage Loan Delinquencies Record Highest Spike in Two Years

Mortgage loan delinquencies spiked at their steepest rate in the past two years last month, according to the latest data from Fitch Ratings. New delinquencies rose among all types of loans.
Non-prime loans experienced the greatest annual increase in delinquencies in June, rising 21.8%. Expanded prime loans charted the second-highest increase, a 12.2% rise. RPL loans experienced a 6.4% annual incline, while prime loan delinquencies rose 5.5%.
Fitch noted that the new delinquencies are more a result of “the borrower’s ability to repay (FICO, employment status, DTI, etc.) rather than borrower’s incentive to pay (LTV).
For example, non-prime loans and expanded prime loans to self-employed borrowers are twice as likely to fall delinquent in May as loans to “waged” workers with the same loan types.
“FICO is a primary driver of delinquency rates,” Fitch said, noting that among Prime 2.0 loans, the delinquency rate for borrowers with FICOs of 675-750 was more than three times higher than for borrowers with FICO scores above 725.
On the other hand LTV does not correlate strongly with delinquency status, according to Fitch. “The amount of equity borrowers have in the home is not a primary driver for whether the monthly mortgage gets paid.”
With many mortgage loans in a state of forbearance, Fitch also noted in its report that, “Fitch views deferrals as a significant liquidity risk to transactions.”
Also, with mortgage rates low, refinance activity has been active, which translates to conditional prepayments, which Fitch generally views as “credit positive.” However, the rating agency did say that when voluntary repayments are high the result can be an “increased likelihood of adverse selection of loans remaining within the pool.”
Looking forward, Fitch says the housing market, and home prices, in particular, will depend on “the unemployment rate as well as income and rent growth.” Fitch expects home price growth to slow and even reverse in some markets.