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.

8 Responses

  1. Legal Eagle (definitely not a Trump guy) breaks down how he sees the Flynn thing:

    Interesting. I always like this guy!

    Like

  2. Good piece:

    “Ben Smith’s NYT Critique of Ronan Farrow Describes a Toxic, Corrosive and Still-Vibrant Trump-Era Pathology: “Resistance Journalism”

    Glenn Greenwald

    May 18 2020, 12:01 p.m.”

    https://theintercept.com/2020/05/18/ben-smiths-nyt-critique-of-ronan-farrow-describes-a-toxic-corrosive-and-still-vibrant-trump-era-pathology-resistance-journalism/

    “Resistance Journalism” is the perfect description of what the MSM has become.

    “Smith aptly dubs this pathology “resistance journalism,” by which he means that journalists are now not only free, but encouraged and incentivized, to say or publish anything they want, no matter how reckless and fact-free, provided their target is someone sufficiently disliked in mainstream liberal media venues and/or on social media:”

    Like

    • Replace “Journalism” with “fabulism” or “speculation” or some other words that doesn’t imply a concern for context, facts, or investigation and I’ll go with that. Resistance is definitely right.

      Like

  3. Related to the Greenwald piece above, this is also worth a read:

    Worth quoting directly:

    “The real story of John Fry, the I.R.S. employee who leaked Mr. Cohen’s records, went like this: Amid the swirl of the scandal involving Stormy Daniels, Mr. Avenatti, her lawyer, took to Twitter one day in May 2018, and demanded that the Treasury Department release Mr. Cohen’s records.

    Mr. Fry, a longtime I.R.S. employee based in San Francisco, was one of the legions of followers of Mr. Avenatti’s Twitter account, and had frequently liked his posts. Hours after Mr. Avenatti’s tweet that day, Mr. Fry started searching for the documents on the government database, downloaded them, then immediately contacted Mr. Avenatti and later sent him Mr. Cohen’s confidential records, according to court documents. “John: I cannot begin to tell you how much I appreciate this. Thank you,’’ Mr. Avenatti wrote to Mr. Fry, according to the documents, then pressed him for more.

    Mr. Fry ended up pleading guilty to a federal charge of unauthorized disclosure of confidential reports this January. In Mr. Fry’s defense, his lawyer said he had been watching “hours and hours” of television, and described him as “a victim of cable news.””

    Like

    • And Trump knows how to play the game against Resistance journalism. Turn it into a WWF event. Which is spot on.

      Trump may be a empty vessel when it comes to policy but his instincts are spot-on. Complete opposite of Jimmy Carter.

      Like

    • I’m liking this guy. Whether he stays at the NYT for very long is an open question.

      Like

  4. “9% of US mortgages are in forbearance”

    Brent, is there any guidance on how real estate tax escrow will be handled in forbearance?

    Presumably if people stop making payments those will just not be paid and they will be delinquent. I of course am assuming that they can’t somehow coerce the servicers to cover that as well.

    Like

    • Presumably if people stop making payments those will just not be paid and they will be delinquent. I of course am assuming that they can’t somehow coerce the servicers to cover that as well.

      They do. Servicers are required to make advances for property taxes and insurance as well as principal and interest. Although if the servicer can’t make the payments, then everyone is out of luck. Which is why I was betting that local governments would put pressure on Congress to create an advance line.

      Like

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