Morning Report: Margin relief, please

Vital Statistics:

 

Last Change
S&P futures 2545 20.4
Oil (WTI) 20.14 -1.39
10 year government bond yield 0.65%
30 year fixed rate mortgage 3.44%

 

Stocks are higher this morning as the government extended social distancing for another two weeks. Bonds and MBS are flattish.

 

Margin calls have been driving the independent mortgage bankers crazy over the past month. The Fed’s dramatic actions in the mortgage backed securities market may have helped liquidity, but it has pushed the IMBs to the wall. The MBA has been in discussions with the Fed and policy makers to make them aware of what is happening.

“While lenders can expect to recognize gains on their pipelines, they will also recognize losses on short TBA positions used for hedging purposes,” MBA said. “These pipeline gains will be recognized over a period of weeks, but the sharp movement in lenders’ hedge positions typically entails daily adjustments and margin calls from their broker-dealer counterparties. Because of these dramatic price changes, broker-dealers’ margin calls on mortgage lenders reached staggering and unprecedented levels by the end of the past 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.”

For what its worth, the Fed’s MBS purchase guidance for today. It is “only” $40 billion versus the $50 billion last week. I see a lot of “tentative” notes, so hopefully they will let them breathe a little. Unfortunately, the April 2.5s are 105 bid this morning, so it isn’t a good start. The regulators need to figure something out: either tell FICC to call off the dogs, or perhaps let independent broker dealers assign their short TBAs to Fannie.

 

Fed MBS purchases

 

There is talk that Ginnie Mae is going to put out an APM that will allow GNMA to cover advances for servicers who get hit by a wave of DQs. The government has to do something, because non-bank servicers simply don’t have the liquidity to handle it.

 

Economists forecast that the Coronovirus will cause a record recession and a record expansion all in the same year. Wells Fargo predicts a 15% contraction in Q2, a 6% contraction in Q3 and a 4% expansion in Q4. They are calling for the 30 year fixed rate mortgage to fall to 2.9%.

 

Zillow is working to cancel all of its existing contracts to buy homes under its iBuyer program. I guess Zillow’s offers are contingent after all, and you have to wonder if paying 7.5% and up is worth it.

 

New Jersey has instituted a 90 day mortgage holiday for those who have been impacted by Coronavirus. No late fees, no credit hit. Note that the mortgage forbearance plans that have been advertised in the press involve adding the missed payments to the end of the loan. That isn’t necessarily the case. Check with your bank.

9 Responses

  1. Does anyone here know if having direct deposit for Social Security payments is the same as having direct deposit with the IRS? We pay quarterly taxes because of the business and being self-employed and very rarely get a refund and if we do then I just have it applied to the following year’s payments. Wonder who I would call to find out.

    We’re going to need that money I think. I went through all the business bills and did worse case scenario if I pay all my vendors etc and none of our customers pay us (entirely possible) we will deplete our savings but possibly not have to take money from our IRA’s. I’m determined to pay what we owe.

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  2. McWing

    The only thing we’ve been able to do so far is cancel one order we placed with our largest supplier and they weren’t too happy about that already. They’d already ordered the plastic. We owe them quite a bit by the end of the week so feel committed to paying them that at least. They store our tooling there (inject molded) and there are very few other places in So Cal who would be able to produce our parts. I think if we pay them what we owe them, they’ll be content for awhile. We also had to pre-pay a large order coming from Taiwan that was processed prior to COVID-19 taking off. We paid that last week as it was ready to ship. We don’t really need the product now as there have been zero sales or even phone calls in two weeks. I’m pretty sure most of our customers and essentially a lot of our vendors are all shut down.

    We’re more fortunate than most though so we’re doing what we can from here to help out whomever we can.

    Last resort is sell one of the houses and completely retire a couple of years ahead of time and probably at a bit of a loss of revenue property wise.

    Hope the rest of you are faring okay for now!

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    • That’s obviously frustrating and I understand your considerations about the plastic fabricator (they have your tooling!) as well as the Taiwanese shipment. Hopefully by the end of April they’ll start lifting some of the Stay-at-Home orders (and in some states not hit hard, perhaps sooner) so if your customers are out of state in areas not hit as hard you’ll start getting orders before the end of April.

      Liked by 1 person

      • We’ll see what happens McWing, we have customers all over the country and the world.

        Thanks for the interest…………..I appreciate it!

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    • Have you considered the SBA Corona Virus loan program?

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      • JNC, not really. It’s my understanding that it’s for businesses with employees which we no longer have. I’ll look into it though. We’ll be okay for a few months but after that will have to look into selling our rental house I think. I’d hate to force our tenant to relocate but we’d probably let him live there rent free while it’s on the market. Right now it’s a contingency plan.

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  3. I assume you’re all tracking the numbers around the world and here in the USA. This is one of the best sites I’ve found to give us real numbers nationally and in some cases parts of the US in death rates. It also keeps track of cases/deaths Internationally.

    https://coronavirus.jhu.edu/map.html

    I’m working on a spread sheet of my county so I can keep track of cases, where they are and the # of deaths in hopes that at some point in the next week or two I can either keep Walter home or let him go shopping. He’s convinced he’s okay and maybe he is, but I’m trying to make the obvious……………obvious.

    Just in my county………..Saturday: 195 confirmed cases, Sunday: 233 cases, Monday: 291 cases. 22% of the cases are in my area of Western Riverside County. Our governor is still agonizing over the lack of testing and the lack of speedy results.

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