Morning Report: Unemployed top 26 million

Vital Statistics:

 

Last Change
S&P futures 2802 14.1
Oil (WTI) 16.51 2.59
10 year government bond yield 0.61%
30 year fixed rate mortgage 3.43%

 

Stocks are higher this morning on no real news. Bonds and MBS are up.

 

4.4 million people filed for unemployment last week. That takes the COVID-19 tally up to 26.4 million.

 

Fannie Mae and Freddie Mac will now purchase loans in forbearance, provided they funded between March and May. They will incorporate a 500 basis point LLPA for first time homebuyers and 700 for everyone else. They will only buy purchase and rate / term refis, no cash outs. After 5/31 any loan in forbearance is ineligible for purchase from Fannie Mae.

 

Mark Calabria is getting beaten up  regarding the reluctance for Fannie and Freddie to provide advance lines to servicers. Ex-MBA President Dave Stevens wrote a scathing article regarding FHFA.

The CARES Act is clear about forbearance: “If a furnisher makes an accommodation with respect to one or more payments on a credit obligation or account of a consumer, and the consumer makes the payments or is not required to make one or more payments pursuant to the accommodation, the furnisher shall (I) report the credit obligation or account as current.

In this morning’s Federal Housing Finance Agency announcement – they are limiting otherwise saleable loans that are performing, “current” according to the law just passed, or charging exorbitant delivery fees.

This is unacceptable. These are GSE-eligible loans as they are performing/current according to the law just passed, unless they were delinquent at time of going into forbearance. The GSEs need to buy these loans and either hold them on balance sheet, or pool them in TBAs if that is an option (likely not).

Good point about the loan being current. If the law says a loan in forbearance is current, then the GSEs should treat it as such.

 

Meanwhile, borrowers in forbearance will get asked to repay the entire forbearance period as a lump sum, which will be pretty much impossible for anyone who had a legitimate hardship. It is looking like the CARES act forbearance will please absolutely no one.

 

The House looks set to pass an additional stimulus bill after Democrats agreed to table the idea of mandatory vote by mail. It has already passed the Senate.

Morning Report: Advance facility needed

Vital Statistics:

 

Last Change
S&P futures 2567 84.4
Oil (WTI) 27.46 -0.89
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.