Morning Report: Fiscal stimulus on the way

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S&P futures 2422 -19.4
Oil (WTI) 23.61 -0.49
10 year government bond yield 0.85%
30 year fixed rate mortgage 3.44%

 

Stocks are lower this morning despite a deal on the fiscal stimulus bill. Bonds and MBS are up. The Fed will be continuing its normal $50 billion in MBS purchses this morning.

 

Congress came to a deal on a stimulus bill which aims to ease as much of the economic shock from Coronavirus as it can. Most Americans will get a $1,200 check, small businesses will get $367 billion in relief and state / local governments will get $500 billion in loans. Unemployed workers will get an additional $600 a week up to 4 months.

 

Trump says that he wants the “country opened” by Easter in order to salvage the US economy. The idea would be to re-open restaurants and in-person employment in the non-hotspots. Needless to say, health experts are aghast at the idea, and yes, health concerns are a concern. They aren’t the only concern. Of course state governments are going to have the last word on that as well.

 

A consortium of originators, credit agencies and lobbyists sent a letter to the government discussing relief for homeowners affected by Coronavirus. The idea would be to allow people affected by the crisis to defer mortgage payments for 90 days without interest or penalties. The missed payments would essentially be added to the final payments of the mortgage without interest. Of course servicers are on the hook for the advances, and non-bank servicers don’t have the liquidity to make these advances. The group urges the government to provide some sort of borrowing facility for non-bank servicers to draw upon to make the these additional payments.

 

The Coronavirus has impacted commercial mortgage backed securities as well. As businesses shut down, they can’t make their mortgage payments. This means that the mortgages securing the complex are having issues. Lots of small business owners are combing over the force majure clauses in their contracts right now. For mortgage bankers, this is an issue because the same folks that buy CMBS often buy RMBS. To make matters worse, some of the biggest buyers of mortgage backed are sovereign wealth funds, and with less goods coming from overseas, the less demand for MBS from foreign funds. The Fed will purchase agency CMBS with the help of Blackrock.

 

Mortgage Applications fell 29% last week as rate spiked and bottlenecks in the mortgage market increased. “The 30-year fixed mortgage rate reached its highest level since mid-January last week, even as Treasury yields remained at relatively low levels. Several factors pushed rates higher, including increased secondary market volatility, lenders grappling with capacity issues and backlogs in their pipelines, and remote work staffing challenges,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting. “With these higher rates, refinance activity fell 34 percent, and both the conventional and government indices dropped to their lowest level in a month. Looking ahead, this week’s additional actions taken by the Federal Reserve to restore liquidity and stabilize the mortgage-backed securities market could put downward pressure on mortgage rates, allowing more homeowners the opportunity to refinance.”

 

Have been hearing that Fannie cash window pricing was 50 – 200 basis points wider yesterday. FHA rates have been getting smashed on the basically worthless servicing value. Every co-issue partner is on hiatus. Tough to manage a pipeline when the bids for your loans are lower and the NY Fed is pushing your hedge inexorably higher which is driving margin calls. I keep saying the mortgage banking business will feast once this is over, but we gotta get to the table first.

51 Responses

  1. It appears that the sticking point in the negotiation was oversight of the $500B grant package for suffering businesses. It will now be subject to an IG and grants to companies owned or controlled by government officials will be banned, eliminating the potential of direct self-dealing. Which is not to say there will be no indirect self-dealing, of course, but some risks are unavoidable.

    Liked by 1 person

    • That seems a pretty lame sticking point for a three day delay. Seems like a face saving concession on someone’s part. I wonder how close this is to the Sunday night deal the Senate reached.

      Liked by 1 person

      • my understanding is that it was a done deal until pelosi got wind of it. and was pissed she wasn’t in the room.

        the senate was going to vote and leave town and jam her. why schumer switched gears i don’t know.

        other than giving trump a win. i think it is just that simple.

        Liked by 1 person

  2. “It will now be subject to an IG”

    I think they should have just given the responsibility to the SIGTARP rather than stand up a new federal IG.

    https://www.sigtarp.gov/Pages/Home.aspx

    https://en.wikipedia.org/wiki/Oversight_of_the_Troubled_Asset_Relief_Program

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  3. We’ve started to investigate loan, lease and other forbearance options from our various creditors. I’ll report back as to how things actually are on the ground.

    Liked by 1 person

  4. For mortgage originators, it is hell on earth right now.

    We make loans and hedge our interest rate exposure with generic MBS futures. Obviously with the FEd buying everything in sight, we are losing on our short position. The regulators are relentless with making the broker-dealers post additional margin (intra-day calls now) and the Fed just keeps buying, pushing up the market against us.

    Once we sell the loan, we can use the P/L to offset the loss on the hedge, but they are pushing everyone to the wall right now and the Fed is just oblivious.

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    • So it’s not actually a good time to get a new mortgage or refinance?

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      • Originators are building in a lot of margin right now to protect themselves against the whipsaws of the market. You probably will get a much better rate once this settles down.

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  5. It’s nutty how the same people who were calling Trump an authoritarian fascist are now decrying his refusal to invoke the Defense Production Act to nationalize industries.

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    • That Act does not nationalize industries. In fact, the stockholders and management come out fine, as the new buyer is the federal gummint. It is in use all the time, even right now. Fed procurement often invokes it on DoD stuff. For example, when the govt orders both Lockheed and Boeing to work on the same parts a feature of the Act lets them do it with no anti-trust issues whatsoever.

      Liked by 1 person

      • I’m sure you are right that’s what it does in regular times, but judging from the commentary on PL and the articles in the Washington Post, New York Times and Vox, the people who are upset with Trump for showing restraint here do want him to use it to actually nationalize industries.

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    • jnc:

      It’s nutty how the same people who were calling Trump an authoritarian fascist are now decrying his refusal to invoke the Defense Production Act to nationalize industries.

      The people who call Trump an authoritarian fascist do it merely for rhetorical effect. In truth most of them actually like authoritarian fascism, in pursuit of the “right” goals, of course.

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      • jnc:

        To your point:

        https://www.politico.com/news/magazine/2020/03/26/trump-is-an-authoritarian-weakman-149573

        The notion of Trump as authoritarian strongman, however, has been cast in an odd light in this pandemic. Would-be tyrants use crisis to consolidate power. Trump, by contrast, has been pilloried from many quarters, including many liberals, for not asserting authority and responsibility more forcefully to combat Covid-19. Rather than seizing on a genuine emergency, Trump was slow to issue an emergency declaration, moved gingerly in employing the Defense Production Act to help overburdened local health systems, and even now seems eager to emphasize that many subjects—closure of schools and businesses, obtaining sufficient ventilators—are primarily problems for state governors to deal with.

        Trump’s apparent personal affinity with Putin, and other dictators, has caused foes to conclude that he has an aesthetic attraction to leaders who don’t let procedural niceties of democracy or law get in their way. But he has shown passivity in what by all rights would be a dream scenario for an authoritarian strongman.

        Perhaps the way to think of Trump is as an authoritarian weakman.

        Apparently the idea that Trump as an authoritarian has always been a myth in the first place hasn’t occurred to the author.

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  6. I agree with this assesment since Trump decided to make the economy a smoking crater. It will make the 2010 wave look small by comparison.

    https://www.dailykos.com/stories/2020/3/24/1930943/-One-more-sign-that-a-landslide-is-coming-in-November

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    • I’m not seeing it. Not sure everybody is going to see this as either a Trump problem, or that what Trump did was that wrong. Could be–but most of the “shutter your business” stuff seems to be coming from the local level.

      Also, when the alternative is Biden . . . I mean, unless he really sharpens up.

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      • There is no example of incumbents being re-elected after economic collapse regardless of who’s fault it is, only punishment of the incumbents. The cause of suffering always falls on the top elected office.

        Liked by 1 person

        • I’m not sure that’s going to be the situation. Generally, historical trends favor incumbents. Hoover did more to torpedo himself—of course so did Trump but it’s not 1930 so I remain dubious. Not sure this is going to seem like an economic collapse—and Hoover didn’t produce a stimulus plan that cut everybody a check.

          A lot of it depends on how things are 3 months from now. If it’s truly cratered and nobody thinks things can get better, maybe. Still—I remain dubious. But time will tell! I was sure HRC was going to win, so what do I know?

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        • Hoover did more to torpedo himself.

          What’s fascinating is that Hoover created many of the programs Roosevelt relied on. In fact, Roosevelt ran to Hoover’s right and relentlessly criticized how his spending was reckless and irresponsible. After the election, he did a 180.

          A lot of it depends on how things are 3 months from now. If it’s truly cratered and nobody thinks things can get better, maybe.

          The economy has stopped, cratered if you will. You just don’t prime the switch thrice and turn to on.

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    • I don’t either. The persuadable population is miniscule. And, as the economic woes go on, the partisan divide will be between the left, who wants everyone shut in, and the right who wants to get everyone back to work.

      It will back the left into the corner of wanting to shut down the economy.

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      • Im not trying to be too argumentative but how is the economy not essentially shut down now and at least until 4/12? We don’t even have unemployment numbers but when we do they’ll be more paroxysm in the market which will feed more unemployment, etc.

        The data is going to show a mortality rate above the flu but well below its current 1.4% and that this economic destruction and the misery that’s unfolding are going to be laid at the man who was steamrolled/panicked into this decision.

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        • a) November is a long time away…
          b) Biden is no Obama.

          Also, the media is going to put the blame on Trump, but unlike 2009, everyone on the right dismisses what they say as partisan boilerplate. They are only talking to themselves.

          Can you imagine that many right / center people going for Biden? Especially when the crazy left is running the show for the Democrats?

          Liked by 1 person

        • I think that’s wishful thinking. Let’s see how Obama/Trump voters feel after 6 months. I know they’re not going to want to reward the incumbent. I saved us from worse things is unconvincing in those circumstances.

          Liked by 1 person

        • You may see Trump as the man who made the decision, and I’m sure the left does, but for a lot of folks the decisions seem collective and often local.

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        • I told some of my unemployed non-political friends about the enhanced unemployment benefits and the $1200 checks and told them to make sure that they had filed for unemployment to qualify.

          They were literally disbelieving that was going to happen.

          If Trump takes credit for those people getting the money and things are back online by June and he’s got a shot.

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  7. I read all of your predictions re the election. I think a lot still depends on how the virus shakes out in all the states. I don’t think we have a clear idea yet how much infection there is across the country. Regardless of what Trump says, a very small percentage of the nation has been tested. If the red states suffer the same way some of the blue states are, and this drags on longer than the next month or so for all of us, then I do think Trump will be toast.

    Even though the “fake news” media, that most of you seem to believe in, is going to blame Trump, there will always be Republicans who believe everything he’s saying now and will say next month and the months after. There is still such a thing as fact checking though of his words, performance, and his ridiculous assertions. I think he will be blamed for loss of life, mishandling his response to a pandemic and the crash of the economy.

    He’s basically campaigning from the WH with these daily updates. I’m not sure the nurses and doctors of our world appreciate his words or perceived ineffectiveness. I think some of them might be Republicans.

    If the red states get back to work and fill up the churches on Easter and skate through the consequences of that kind of dangerous behavior, then he might have a chance.

    Biden is not the ideal candidate for us and so far I’m not encouraged to actually vote, although I know I will.

    Every single person in my family is suffering in some way right now and of the 9 adults, 3 of them voted for Trump but will not do so again.

    Just my 2 cents!

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    • Even though the “fake news” media, that most of you seem to believe in, is going to blame Trump, there will always be Republicans who believe everything he’s saying now and will say next month and the months after.

      Interesting. Go to the progressive sites, DKos, TPM, WaPo, NYT, HuffPo and you’ll find that the “fake news” media is as despised there as it is on the right. As far as “believing” it, I take what is said with an enourmous grain of salt and check and verify through a number of different sources. I’ve never accepted at face value what the “fake news” says and I wonder why people do or did? In fact, I’d say information is much more available and unfiltered now than ever, why is that a bad thing? There was never a golden age of media, just a lesser ability to check the veracity of what is said and not said. Also, aren’t there Democrats that always believed whatever Obama said? Do you think Republicans are more prone to be mindless automatons? If so, why?

      He’s basically campaigning from the WH with these daily updates. I’m not sure the nurses and doctors of our world appreciate his words or perceived ineffectiveness. I think some of them might be Republicans.

      Is it possible that all politicians campaign all the time? That political calculation and narcissism of someone who runs, let alone elected to the highest office in the land would be capable of not campaigning during every moment? Obama’s Chief of Staff said to “Never let a crisis go to waste.” and Jim Clyburn was recently quoted as saying essentially the same thing. As far as doctors and nurses? Based on voting demographics and income, doctors are overwhelmingly more likely to be Democrats. In fact, in almost 25 years of working with doctors across every specialty you can imagine I can count on one hand the number of them that were Republicans. Finally, I suspect the nurses more or less align with the prevailing electorate of any state though I think if you consider that the more highly educated one is the more likely they are to vote democratic could prevail as well.

      I’m sorry your family is suffering, it’s awful to hear and my heart does indeed go out to them.

      Just curious, could it be that the previous Trump voters in your family are only saying they won’t vote for Trump as a means to keep the peace?

      I hope all turns out well for you, your husband and family. Listening to the news is terrifying, no doubt.

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      • McWing

        Also, aren’t there Democrats that always believed whatever Obama said? Do you think Republicans are more prone to be mindless automatons? If so, why?

        No not necessarily but I do think there are segments of the population, both conservative and liberal, who believe what they want to hear. I think Trump probably appeals to the conservative faction in the same way Obama appealed to the rest of us…………..I’m guilty, I still like the guy!

        Is it possible that all politicians campaign all the time?

        It is absolutely possible. I just think while he’s campaigning in a pandemic it’s not really appropriate. Just my cynicism showing through I guess re politics.

        Just curious, could it be that the previous Trump voters in your family are only saying they won’t vote for Trump as a means to keep the peace?

        Lol, you don’t know my family………….we’re always arguing politics and religion………….as well as energy independence and women’s rights…………..I raised a bunch of microphones!

        Luckily we all still take the differences with a grain of salt and admit our mistakes……………..usually 😉

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        • lms:

          as well as energy independence and women’s rights

          Are the arguments over whether women should have equal rights to men, or over whether they should have special rights that men shouldn’t have?

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        • LOL McWing, no one here thinks we should have more rights than men except for reproductive rights but with a daughter in the oil industry, things come up from time to time regarding workplace issues.

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        • lms:

          LOL McWing,

          That was me, not McWing.

          no one here thinks we should have more rights than men except for reproductive rights

          Someone thinks that women should have a right to reproduce, but men should not?

          Edit: Sorry Scott, I didn’t notice your part in the discussion.

          Like

        • Someone thinks that women should have a right to reproduce, but men should not?

          I’m talking about abortion rights and it’s still a discussion around our get togethers occasionally. That’s all I’m saying, I’m not going to argue the issue one way or another right now though. Let’s not go there again. 😉

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        • lms:

          I’m talking about abortion rights….

          Ooohhhhhh….I don’t know why people don’t just say what they mean when it comes to talking about abortion. There’s just way too many euphemisms. Very confusing. 😉

          Liked by 1 person

        • Scott,

          There’s just way too many euphemisms. Very confusing

          LOL, I’m not afraid to call it what it is, just didn’t want to open am ATM can of worms. I was really just trying to highlight the differences between my children, their spouses, one adult grandchild and Walter and I. We’re actually a very diverse group.

          Like

        • lms:

          We’re actually a very diverse group.

          In the corporate world, “diverse” doesn’t mean “diverse” at all. It is a euphemism for “more women”.

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      • Scott

        In the corporate world, “diverse” doesn’t mean “diverse” at all. It is a euphemism for “more women”.

        Hmmmmmm, I was actually talking about the diversity of opinions in my family not the corporate world. I will say though that some of the things my daughter worked on at Anadardko weren’t related only to hiring more women. Retaining women was however a huge issue. I have very little personal experience in the corporate world so don’t have much of an opinion though one way or another.

        Like

        • lms:

          I was actually talking about the diversity of opinions in my family…

          I know! I just wish it meant the same thing in the one place where I hear the term the most. Alas…

          Like

  8. I’m participating in a blog at a fitness site that includes people across the world. It’s been very interesting and there are actual rules in place and moderators who delete and admonish posters who bring politics into it. We’ve had a woman who has been posting from Italy who we haven’t heard from in a week and we’re all a little worried about her and her husband. She has been instrumental in warning us of what might be in store for parts of the US.

    Anyway, here’s my update from tonight at the COVID-19 site.

    Here on the ground in Riverside County in So Cal we have the National Guard helping at the food banks and a new Federal medical facility going up somewhere in the county but I’m not really sure where that will be. We have one drive-thru testing facility at the stadium in Lake Elsinore but our testing ability is still very limited as far as I know. In the entire state of CA I’ve read we’ve only tested as of yesterday about 26,000 people. Not sure how valid that is but it’s difficult to get exact numbers.

    Hubby and I are home and going out once a week for groceries or prescriptions for him and there are quite a few stores here opening early for seniors.

    https://www.usatoday.com/story/money/2020/03/17/coronavirus-shopping-stores-introduce-time-for-vulnerable-elderly-pregnant/5074064002/

    We have a small wholesale sporting goods business and we’ve worked from home since 2006 and have a big warehouse in our backyard and share an office in one of the bedrooms. We’ve had no calls or orders in 1 1/2 weeks but we have a rainy day fund and will be able to pay our bills. Not sure if all of our customers will be able to pay us until they get back up and running, if they do. We don’t have employees anymore so I’m actually grateful for that.

    On the health front, my daughter in San Francisco is finally better. Her doc thinks she had COVID-19 even though the first test came back negative. She wanted her to be tested again but was denied the second test. We would like to know if she had it though in case she now has so hopefully, when there are more tests available that will be possible.

    Our son in CO is considered an essential employee and CO just ordered a stay at home declaration tonight so he’ll still be working. He’s not very busy and depends on commissions so we’ll see how that goes.

    Our daughter in CO is working at home with her husband and their 28 month old son but are in the process of having 2/3 of their house completely gutted and remodeled. If they’d know this was coming they never would have started. She’s completely overwhelmed and normally I would go there to help but they’re living out of 2 bedrooms, 1 bathroom and a basement which also includes their office. Our grandson has been running a fever since Monday and has a cough so they’re not sure what’s going on with that. She’d like to have him tested but isn’t sure that will happen.

    I’m pretty stressed worrying about the kids but I’m not allowed to leave the house to help which is really what’s killing me.

    On a personal note my hip replacement has been delayed indefinitely. I would never want to take the resources away from someone who needs them more.

    Hoping this passes sooner rather than later but I seriously doubt Easter weekend will be the turning point, at least not here or in many other states. We have a niece and great nephew in NY and are praying for them every day, as well as everyone around the world.

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  9. NoVA, any chance you feel like giving an update on what you are seeing? Some of your commentary on PL has me more concerned than the news media reporting.

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  10. If Sanders and AOC are really trying to kill this bill, it scrambles the Trump election calculus.

    He can make them the face of the Democrats, especially if there’s another debate and Sanders makes it an issue there.

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  11. “NoVA, any chance you feel like giving an update on what you are seeing? Some of your commentary on PL has me more concerned than the news media reporting.”

    There is a critical shortage of PPE in the hotspots of the NYC metro area. I have a member who reports they’ll run out in 3-5 days and their burn rate is 13,000 masks per day. and that was yesterday (or maybe the day before). they are already reusing n95s. fortunately, no provider infections yet. but they expect the peak to hit in a week or 2. and there are not enough ventilators. so while i think it will largely be localized, it won’t take much for this to spread.

    and the idea that this is just targeting the 65+ is wrong. children seem to be okay, but beyond that, patients of every age. the distancing will work and i’m taking it seriously, but not panicking. but if i were NYC metro? Brent — stock up and don’t leave the house for the next week or so.

    I’m probably more angry/blunt on the PL, because I’ve fucking had it with them because I know damn well they see is as a way to win the WH. that and there’s language in teh senate bill about FEMA field morgues and stuff like that. i know it’s just funding authorization, but it’s creepy AF

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    • Sanders and AOC really going to hold this up?

      Liked by 1 person

    • In my neck of the woods in upper westchester, we only have 7 cases. All of the towns surrounding us have about that number too, so hopefully we’ll be ok. I go out every few days for groceries, and still go for a run in the neighborhood alone.

      1 person in my company got it, and she sat right next to me. However I haven’t been in proximity of her for 2 weeks now.

      Liked by 1 person

      • Do you know how these people are doing? I feel like we get very little info about folks with COVID-19 who basically feel like they have the flu and are recuperating or feel just dandy now.

        Did get one story out of the UK where a 21 year old woman with no underlying health issues supposedly died of COVID-19, but there is no actual evidence of this–specifically that she had no underlying health issues. It’s all based on the parents and a few relatives Facebook posts. Which were filled with a lot of 1990s “AIDS is about everybody” kind of language. Don’t want to be so skeptical but I kind of can’t help it.

        Like

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