|10 year government bond yield||0.65%|
|30 year fixed rate mortgage||3.44%|
Stocks are higher as early signs show a plateauing in the COVID-19 crisis. Bonds and MBS are down.
Ex-MBA President Dave Stevens penned an editorial in Housing Wire that is worth a read. The CARES act mortgage forbearance policy is wreaking havoc on the mortgage banking system in general. The unintended consequences of this must be dealt with immediately. The servicers are Ground Zero of the crisis, as the CARES act requires them to make advances they don’t have. Ginnie Mae envisions a facility to make advances, but so far the GSEs do not. Also, the government’s estimate that only 750,000 homeowners will take advantage of this program is simply wishful thinking. There are probably 50 million mortgaged properties in the US. 10 million people lost their jobs in the last two weeks. Dave Stevens argues that the government must establish an advance line facility for Fannie and Freddie loans, and they need to be clear on how advances will be replenished. The cost of not figuring this out is already evident:
Bid-ask spreads have widened, servicing bids have all but dried up or are being severely curtailed, lenders are having to pull back on minimum credit score, maximum DTI, certain loan products, and more. The Jumbo market is all but gone, especially in the third-party channels. In short, any prospective homebuyer right now is more likely to find fewer or no options for mortgage financing. This is greatly the outcome of the massive uncertainty surrounding the rollout of these federal interventions.
We are going to start hearing about some of the more tangible effects when the banks start reporting first quarter earnings in about a week. I can’t imagine what JP Morgan and Wells are going to have to say. Note JP Morgan is already publicly musing about cutting the dividend.
Black Knight Financial Services has a white paper discussing how to navigate the COVID-19 environment.
Bank of America has seen massive demand for the SBA Payroll Protection loans. Bank of America CEO Brian Moynihan said that the bank would serve its borrowing customers (i.e. existing clients) first. There remain issues regarding reps and warrants relief for fraud and money laundering, which have to get solved before the banks will really start doing these.
St. Louis Fed President James Bullard said that the COVID-19 stimulus bill was the correct size, and another one is probably not needed. He envisions the US economy having a sharp rebound once this is over.
New York is beginning to plan for re-opening business.