Morning Report: 9% of US mortgages are in forbearance

Vital Statistics:

 

Last Change
S&P futures 2929 83.1
Oil (WTI) 32.54 1.29
10 year government bond yield 0.68%
30 year fixed rate mortgage 3.36%

 

Stocks are higher this morning on positive news for a COVID vaccine. Bonds and MBS are down.

 

The upcoming week should be relatively quiet, with no major economic news. Jerome Powell speaks tomorrow and we will get the FOMC minutes, but that is about it. Markets will be closing early on Friday for the Memorial Day weekend.

 

The MBA sent a letter to Congress stressing the need for a liquidity facility for non-bank servicers. In order to work, Ginnie must be given legal authority to approve pledges of an issuer’s future reimbursements on servicing advances. The MBA also points out that allowing everyone to get forbearance regardless of circumstances was not the smartest idea. While FHFA has stated that borrowers who seek forbearance will not be required to repay everything at once, that doesn’t necessarily apply to non-government-backed paper.

 

About 9% of US mortgages are in forbearance right now. This works out to be $1 trillion in unpaid principal. By the end of June, Black Knight estimates that 10% – 12% of the mortgage market will be in forbearance. 12% would work out to be 6.3 million borrowers. That is a lot of advances. Separately, the National Multifamily Housing Council reported that 88% of renters made their May payment through May 13.

 

Jerome Powell warned on the economy turning around: “There is a growing sense that the recovery may come more slowly than we would like, but it will come. And that may mean that it’s necessary for us to do more.” He is advocating for Congress to provide more fiscal stimulus, which doesn’t seem like it will be forthcoming. The House has passed a liberal wish-list, but Mitch McConnell doesn’t seem all that eager to take it up. The big trade will be liability protection for business in exchange for vote-by-mail.

 

The MBA says buyers will return by summer as lockdown ends. “We expect that heading into the summer, more prospective homebuyers will gradually return to the market.” FWIW, “summer” is only a month away, but I think this is already happening. I was listening to the American Homes 4 Rent conference call, and they said that traffic was slower in the second half of March, but by the second half of April, traffic was up 25% year-over-year. They had 9,500 showings is five days which worked out to be six tours per available property. While these are for rentals, it does show that people who are living in crowded urban areas want to escape to the suburbs, where social distancing is easier. The company even mentioned on the call that COVID is driving traffic. I have to imagine the same thing happening for purchase activity. We will get a better idea on April numbers this week when existing home sales comes out on Thursday.

 

Just like the talking heads overestimated the whole COVID-19 crisis, I think they are also overestimating the economic fallout from it. There just weren’t too many problems with the economy going into the crisis, and this recession wasn’t caused by economic rot or inflation. It was like taking a healthy person and putting him into a medically induced coma. All of the economic models are based on history – in other words, recessions which were caused by asset bubbles or the Fed. It would be like comparing our healthy patient’s coma recovery to someone who was put into a medically-induced coma because of an illness. Without an underlying condition that needs to heal, the recovery should be faster, all things being equal.

What’s With The Numbers?

From The Dispatch:

As of Sunday night, 1,486,757 cases of COVID-19 have been reported in the United States (an increase of 18,961 from yesterday) and 89,562 deaths have been attributed to the virus (an increase of 808 from yesterday), according to the Johns Hopkins University COVID-19 Dashboard, leading to a mortality rate among confirmed cases of 6 percent (the true mortality rate is likely lower, but it’s impossible to determine precisely due to incomplete testing regimens). Of 11,499,203 coronavirus tests conducted in the United States (422,024 conducted since yesterday), 12.9 percent have come back positive.

I noticed last week the deaths seemed to be generally curving downwards, having dropped from 2000+ to 1100 to 700, but then curving back up towards the end of the week (an anomaly that I think must be explained by methods of counting and aggregation and when things happen more than date-of-death).

But the numbers I’m thinking about are cases of COVID-19 and some of how all this is reported.

For example, with The Dispatch we always get the mortality rate of 6% with the caveat it might be lower.

But never the “confirmed” cases percentage against population, which, as I calculate it, is 0.4%.

Or the overall fatality rate of deaths/population. Which as I calculate it would be .02%.

And that’s assuming all those deaths should be attributed to Coronavirus. As Colorado dropped a number of COVID-19 deaths from their count due to attributing mortality to other causes, there is clearly still some variation as to how Coronavirus deaths are actually assessed.

My point being, the fact that “confirmed” cases (not always the result of testing, but sometimes diagnosis by symptoms) being 0.4% seems like a relevant number, but it never seems to be put that way. Just as the overall fatality rate within the entire population being 0.02%.

The news gives us all sorts of comparisons to help people think of numbers when, saying, reporting on the national debt or a drop in the stock market or something other event or issue that involves complicated numbers. I’ve heard the national debt measured in dollar-bills around the earth or reaching to the moon or in contrast to stars in the galaxy and so on and so forth.

There doesn’t seem to be a similar urge to contextualize the coronavirus numbers. There also has been little discussion of how these numbers are achieved. Are cases all the results of tests, or assessed by symptoms, or a mix of both? Is it the same from state-to-state or country-to-country? It seems clear coronavirus deaths are not being assessed the same state-to-state.

So when we talk about surges or spikes, are we talking about real changes or maybe changes in how numbers or counted, or when data is recompiled, or something else?

From the John Hopkin’s dashboard to official state numbers, it feels to me as everything is being presented as being much more concrete and standardized and, frankly, accurate than it really is.

Just a Monday morning observation. Hope everyone is having a great (and safe) day!

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