Morning Report: The Fed maintains rates at zero

Vital Statistics:

 

Last Change
S&P futures 2908 -28.1
Oil (WTI) 16.81 3.29
10 year government bond yield 0.61%
30 year fixed rate mortgage 3.43%

 

Stocks are lower this morning on no real news. Bonds and MBS are flat.

 

The Fed maintained interest rates at 0% and pledged to continue to do what it can to support functioning markets, including buying agency mortgage backed securities and treasuries. They didn’t specify amounts, just that they wanted to keep orderly markets. As Dave Stevens noted, it is clear the Fed wants to see lower mortgage rates as a way to stimulate the economy. The problem with that of course is that the CARES Act is doing the exact opposite – it is restricting credit more than what happened in 2008. The MBA’s Mortgage Credit Availability index took a nosedive in March, and I think it will be much, much worse in April.

MCAI

Flagstar just announced a 5 point LLPA for cash-out refis. It is clear that these are the next program to go bye-bye, joining jumbos, non-QM, and sub 700 FHA. The law of unintended consequences rears its ugly head once again. I wonder if the government could tweak the CARES Act to make cash-outs ineligible for forbearance. That way the program could still exist and provide relief to people hit by COVID. Presumably if you do a cash-out, you have money to live on, so….

 

Initial Jobless Claims came in at 3.8 million, pushing the COVID job losses over 30 million.

 

Personal incomes fell 2% in March and personal spending fell 7%. The personal consumption expenditure index remained under control. I suspect that increasing food prices are being offset by lower energy prices.

 

Mortgage REITs AGNC and Annaly reported yesterday, and needless to say both were hit hard by COVID. Both have completed their deleveraging, and AGNC noted that its book value per share increased by 8% in April, after declining about 22% in Q1. For the agency REITs, it looks like the crisis is over.

 

Another round of stimulus may be a bridge too far. Nancy Pelosi wants to force states to vote by mail, and that is a non-starter with Republicans. Mitch McConnell wants lawsuit protection for businesses that remain open during the COVID crisis, and that is a non-starter to Democrats. As Travelers noted on its conference call, trial lawyers smell an opportunity here and are ginning up lawsuits as we speak.

Morning Report: First quarter GDP falls 4.8%

Vital Statistics:

 

Last Change
S&P futures 2915 48.1
Oil (WTI) 15.71 3.29
10 year government bond yield 0.61%
30 year fixed rate mortgage 3.43%

 

Stocks are higher this morning despite a disappointing GDP print. Bonds and MBS are up.

 

First quarter GDP fell 4.8% as the COVID lockdown depressed consumer spending, which fell 7.6%. The price index rose 1.3%, and that will be a number to watch going forward. Inflation is too much money chasing too few goods. We have managed to sidestep inflation in the past because shortages weren’t a problem. Now they are. Do you remember paying a buck a roll for TP last year? How about chicken? It averaged $3.11 a pound last year. At the local Stop and Shop it is now $3.80, and with the Tyson closures it will go higher. The black swan out of this whole thing could be a resurgence of inflation, right when that is the last thing the economy needs. 

 

The FOMC will make their announcement at 2:00 pm today. Not sure what they can say,(Information received since the Federal Open Market Committee met in March seems to indicate the economy has hit a brick wall and is sinking like an anvil….) and I can’t see it being market-moving. The mortgage industry would love to see something about a servicing advance repo line, but aside from accepting newer forms of collateral I don’t think there is much more they can do.

 

Mortgage applications fell 3.3% last week as purchases rose 12% and refis fell 7.5%. The refi market continues to tighten as investors add overlays to cash-outs. The strength in the purchase market is encouraging. Separately, the homeownership rate hit 63.5% in the first quarter, the highest since 2013. I think for many urban millennials with families, the COVID Crisis will trigger a flight to the suburbs, which should bump up the homeownership rate going forward.

 

According to a NPR poll, half of Americans have been financially affected by the Coronavirus. If that is the case, then forbearance numbers are going up.

 

Consumer confidence fell from 119 to 87, which was worse than expected.

 

 

Morning Report: 7% of all mortgages are in forbearance.

Vital Statistics:

 

Last Change
S&P futures 2912 42.1
Oil (WTI) 12.71 -0.29
10 year government bond yield 0.64%
30 year fixed rate mortgage 3.43%

 

Stocks are higher this morning as earnings continue to come in. Bonds and MBS are flattish.

 

7% of all mortgages are in forbearance, according to the MBA. Ginnie Mae loans (FHA and VA) are now at 10%. Fannie loans are 4.6% and Freddie are 5.5%. Private label increased to 7.5%. The FHFA has also released a press release saying that lump sum payments at the end of the forbearance period are not required.

 

The Economic Policy Institute (a lefty think tank) estimates from a poll that initial jobless claims are understated by 9 – 14 million due to system problems, in other words people who can’t register because the state unemployment sites are overwhelmed with traffic. If they are right, then the actual number of people who lost their jobs due to COVID is about 37.5 million. In other words, about 662 livelihoods per person who has died from the virus.

 

The COVID lockdown is beginning to affect the food supply as well. At some point the cure is worse than the disease.

 

The Fed begins the two-day FOMC meeting this week. They can’t do much more monetary policy wise, but it sure would be nice if they announced a facility to allow mortgage bankers to repo servicing advances.

 

Home prices rose 0.4% MOM and 3.5% YOY in February, according to the Case-Shiller Home Price Index. It will be interesting to see if the COVID crisis affects home prices nationally. FWIW, Pulte said on its conference call that it hasn’t cut prices at all. In some markets where there is excess spec inventory, builders are adding financing incentives, but not breaking price.

 

We are starting to see warehouse banks curtail high balance loans. Cash-out refis are also getting harder to do. I heard a rumor that Ginnie Mae may also introduce some sort of vehicle to pass some of the forbearance costs onto lenders (perhaps a special pool for forbearance loans). While the government’s forbearance policies may provide relief to homeowners, the unintended consequence is a severe restriction in credit.

 

One of the big trends in the aftermath of the financial crisis was the Millennial Generation preferring to live in urban walkable areas. COVID-19 might have stuck a fork in that trend. Good news for suburban SFR property owners.

Morning Report: Shelter in place orders are being relaxed

Vital Statistics:

 

Last Change
S&P futures 2856 28.1
Oil (WTI) 12.71 -4.29
10 year government bond yield 0.63%
30 year fixed rate mortgage 3.43%

 

Stocks are higher this morning on optimism that we have turned the corner on the COVID-19 crisis. Bonds and MBS are down.

 

In terms of economic data, the big number will be the first pass at Q1 GDP will be released on Wednesday. The consensus is that GDP contracted 3.8% as consumer spending falls 1.5%. Trump Administration Advisor Kevin Hassett thinks the economy could contract 30% in Q2.

 

The Fed will have the April FOMC meeting this week, and with rates already at zero, it probably won’t have the impact it normally has. Speaking of the Fed, they are ratcheting back MBS purchases again this week, with only $8 billion a day.

 

It looks like some states are beginning to relax the shelter-in-place orders, and even New York is looking to ease things in mid-May. If these states end up seeing no big uptick in cases, I expect the rest of the country to follow pretty quickly. Especially if the number of deaths settles in under 100k. FWIW, I think if most of the country is back to normal by Memorial Day, we can take the Great Depression II economic forecasts off the table.

 

Ex MBA President wrote a scathing editorial in Housing Wire regarding Mark Calabria and how he is the worst person for the job right now. In Mark’s defense, his job is to protect the GSEs and (and therefore the taxpayer), however Dave is correct that taking a cavalier attitude with non-bank servicers is not the best look right now when (a) the government imposed this forbearance period on everyone and (a) the GSEs are part of the government. If the government goes forward and imposes all of these costs on the industry, the least it can do is help mitigate those as much as it can. Perhaps the aid doesn’t need to come from Fannie and Freddie, but the government should provide it from somewhere.

 

Home price appreciation is slowing, but not dropping yet, according to Realtor.com. Inventory is tight, largely driven by sellers who are pulling their homes off the market. This could be due to fears of not getting the best price, or it could be due to people wanting to keep potentially sick strangers from entering their home.

 

Pulte noted on its Q1 conference call that pricing is holding up, and cancellations are unexpectedly small – about 2% and only due to job losses. Orders on the other hand are weak. In the first week of March, they got over 800 orders. By the last week of March it was 140.

 

Rent strikes are beginning to pop up in NYC. This one is not the usual tenant versus landlord situation where there is a dispute over fixing things. This is meant to be a political statement to goad lawmakers into doing something for renters. Bold strategy, Cotton…

Morning Report: Second round of stimulus passes

Vital Statistics:

 

Last Change
S&P futures 2806 14.1
Oil (WTI) 17.21 0.69
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 flat.

 

The second round of stimulus passed the House yesterday and is scheduled to be signed by the President at noon today.

 

Durable goods orders fell 14% in March, driven by lower transportation orders. Ex-transports, they were down 0.2%. Core Capital Goods (a proxy for capital expenditures) rose 0.1%.

 

New Home Sales fell to 627k in March from an annualized pace of 741k in February.

 

Homebuilder Pulte reported good earnings yesterday, however this was mainly before the COVID-19 pandemic hit.  “The U.S. housing industry carried tremendous momentum into 2020, until the devastating effects of the COVID-19 pandemic began impacting the country,” said Ryan Marshall, PulteGroup President and CEO. “As the coronavirus spread and state and local governments implemented various restrictions and stay-in-place orders, we experienced a material slowdown in consumer traffic and sales activity beginning in mid-March.” Despite the COVID issues, closings and orders were up 16% and gross margins increased. Before COVID, 2020 was expected to be the year when homebuilding finally broke out of the post-bubble vortex. It looks like it will have to wait another year. As an aside, Redfin reported that 1 in 7 offers were signed by buyers who saw the home virtually.

 

About 3.4 million homeowners have requested mortgage forbearance, according to Black Knight Financial Services. This is 6.4% of all mortgages. With 26 million new unemployment claims since the shelter-in-place orders, that number is probably going up. At this level, servicers in aggregate are on the hook to advance $2.8 billion per month for Ginnie securities. So far, Treasury is refusing to create an advance facility for non-bank servicers.

 

Some states are relaxing shelter-in-place restrictions and allowing non-essential businesses to re-open. Needless to say, public health types are aghast, however it will be interesting to see how well it works, especially Texas. Speaking of Texas, the amount of newly unemployed in the US, about 26 million, is just shy of the population of the US’s second most populous state at 29 million. That puts the economic carnage of this shelter-in-place order in perspective. Even New York is beginning to look at relaxing restrictions, at least upstate.

 

 

 

 

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: Existing home sales fall YOY

Vital Statistics:

 

Last Change
S&P futures 2779 40.1
Oil (WTI) 14.11 2.59
10 year government bond yield 0.60%
30 year fixed rate mortgage 3.43%

 

Stocks are higher this morning after the Senate passed a stimulus bill to increase aid to small business, and oil rallies. Bonds and MBS are down.

 

Existing home sales fell 8.5% month over month in March, but are still up modestly on a YOY basis. “Unfortunately, we knew home sales would wane in March due to the coronavirus outbreak,” said Lawrence Yun, NAR’s chief economist. “More temporary interruptions to home sales should be expected in the next couple of months, though home prices will still likely rise.” Pricing was strong, with the median home price up 8% YOY. Inventory is still tight, down 10% YOY and is about 3.4 months worth. First time homebuyers increased to 34% of all buyers and investors fell to 13%.

 

Meanwhile, some are fretting about another housing crash. When demand outstrips supply as much as it does right now, you generally don’t see crashes. Residential real estate bubbles like we saw from 2004-2006 are rare (like once or twice a century). The conditions required for one simply aren’t in place right now.

 

Mortgage applications fell 0.3% last week as purchases rose 2% and refis fell 1%. Meanwhile, house prices rose 0.7% MOM in February and were up 5.7% YOY, according to the FHFA House Price Index.

 

JP Morgan is preparing to bring back workers in phases, according to an internal memo. Meanwhile, New York State will re-open in phases, based on how many COVID-19 cases are out there.

%d bloggers like this: