Morning Report: Servicer advance line 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.

20 Responses

  1. “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. ”

    Most of the banks are taking the approach of only initiating these loans for existing clients.


  2. As with every massive bill the technical glitches in CARES are huge.
    One would hope that technical corrections do not get bogged down in partisanship the way they did with ACA and Trump’s tax cuts.

    It turns out that to get the SBA forgivable loans for payroll protection – a great deal, on paper – the loan is not treated as income nor is the forgiveness of the loan treated as income except to the extent of withholding taxes – one must have a “personal banker”. This will work out alright for small businesses operating through credit unions, but is going to be a red tape nightmare for most.

    Some of us are old enough to remember when “personal bankers” were a real thing, as were locally owned banks.

    Liked by 1 person

  3. In the wake of the Horowitz Report, the House passed a FISA reform bill on March 15. It had bipartisan support. AG Barr supported it. COVID-19 got in the way, but when the Senate gets back to Old Business this should be first on the agenda.

    Here is one view of the bill:

    Here is another:

    Volokh has a critique of the FISA court itself for how lax its “oversight” of the process has proven, if anyone is interested.

    Liked by 1 person

  4. Worth noting:

    “Announcement to Readers: I’m Moving
    Substack is now my full-time job.

    Matt Taibbi”

    I’ll probably subscribe.

    Liked by 1 person

  5. This is a bad idea and a worse precedent:

    “Evers’s order Monday both postpone Tuesday’s voting and extends the terms of thousands of municipal officials whose terms expire in April and are on the spring ballot.”


    • I think it is a good idea and a bad precedent.

      For it to become a non-precedent will require some serious legislative attention. There is more than one way to skin that cat, but it will have to be skinned or it will become a very smelly cat corpse.

      Liked by 1 person

    • They’ve ended up voting as state court said they must. Only 5 polling places open and lines are huge. Also, a lot of requests for mail in voting haven’t been received so those folks have to brave the lines as well. I honestly don’t know if I would bother voting in this kind of situation. I’m more terrified of getting COVID-19 than I am of the consequences of not voting.


  6. It’s interesting to me to see the number of comments on diaries that tag Joe Biden versus those that tag Bernie Sanders. There is just very little energy with Joe Biden on the Democratic base side. I guess I don’t blame them though, with Trump destroying the economy and guaranteeing a Democratic landslide. This is their chance to get the brass-ring.

    Liked by 1 person

  7. Wow. Wells Fargo can’t do any additional lending with the Payroll Protection Program because they are asset cap limit.

    Thanks Elizabeth Warren.


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