Morning Report: Forbearances fall

Posted on July 6, 2020 by Brent Nyitray

Vital Statistics:

 

Last Change
S&P futures 3173 40.1
Oil (WTI) 40.64 0.01
10 year government bond yield 0.7%
30 year fixed rate mortgage 3.12%

 

Stocks are higher this morning on overseas strength. Bonds and MBS are down small.

 

The week after the jobs report is usually pretty data-light and the upcoming week is no exception. We do have a lot of Fed-speak, but that is it.

 

The number of borrowers in forbearance plans declined last week, according to Black Knight. The number of loans in forbearance dropped by 104k, and brings us back to levels last seen in early May. Black Knight doesn’t have a concrete reason for the decline, but it does postulate that many of the initial forbearance plans were for 90 days or so, and if you received forbearance in mid-March, it was up by mid-June. Of course, the economy is improving as well, and many people who were put out of work due to stay-at-home orders are now back on the job.

 

Luxury home prices are falling, according to Redfin. “The pandemic is playing an outsized role in the luxury market, as very expensive homes are particularly sensitive to periods of economic uncertainty,” said Redfin economist Taylor Marr. “Many luxury buyers are nervous about pouring money into an investment that may be difficult to sell if the economy takes a nosedive. By comparison, people buying starter homes they plan to live in for 10 years are less concerned with volatile financial markets as long as they have money for a down payment and can afford monthly mortgage payments. And although access to credit is loosening up now, it tightened considerably for jumbo loans, which a lot of luxury buyers use, in April and May.”

 

Tappable home equity just topped $6.5 trillion, which is a record.

“Tappable equity rose by 8% year-over-year in the first quarter of 2020 to a record high of $6.5 trillion,” said Graboske. “What’s more, with mortgage interest rates hitting record lows, 90% of homeowners with tappable equity now have first lien rates above the prevailing market average. But while Q1 2020 saw overall refinance lending climb to a 7-year high, the number of cash-out refinances, as well as the dollar value of equity withdrawn via refinance, fell for the first time since early 2019. All in, cash-outs accounted for just 42% of refinance loans in the first quarter, roughly half of what was seen at the recent high in Q4 2018 and the lowest such share since Q1 2016. Likewise, the $38.7 billion in equity withdrawn from the market via cash-out refinances was down 8% from the prior quarter. Further, rate lock data – a good indicator of lending activity – suggests the trend is likely to continue, as the cash-out share of refinance activity has continued to fall throughout the second quarter.

As COVID started a mass tightening in credit, jumbos and cash-out refinances became unattractive to many lenders and MBS investors. Fears of rapid prepayment speeds meant that investor demand was weak. As confidence returns to the markets, cash out refis should provide a long-lasting opportunity for the industry. To put that $6.5 trillion into perspective, the MBA estimates that 2020 volume will be around $2.5 trillion. So this could have some legs.

Filed under: Economy, Morning Report |

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34 Responses

  1. markinaustin, on July 6, 2020 at 9:31 am said:

    A good read, Brent.

    I am still puzzling over enthusiasm in American markets. I buy your explanation that stocks are a less inflated asset set than investor real estate, although my REITs are weathering the storm so far. I cannot find the ROI rentals we did a few years ago and we are not buying more duplexes.

    I think aside from petroleum futures I might suggest investigating Aussie and Cdn mining and mineral stocks, and their commodities markets, but I have not done so myself. It will be a good stay-at-home project for me, although I prefer constant tinkering with my old car which I would not hesitate to drive cross country if I could leave HQ, where I am currently stationed.

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    • Brent Nyitray, on July 6, 2020 at 9:33 am said:

      Thanks Mark. I think there may be a resurrection of the Greenspan Put, which is now the Powell Put.

      FYI, I cover the REITs and the financials for Motley Fool, so I have written quite a few articles on the mall reits, the mortgage reits, data reits etc.

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      • markinaustin, on July 6, 2020 at 10:47 am said:

        Maybe I have to resubscribe to the MF.

        It’s been many years since I let my scrip lapse. Having bet fairly heavily on exempt assets when I was an active litigator [life insurance, SEP-IRA, annuities] plus local rental real estate on a continuing basis I stopped reading the Fool.

        Over the years of practice, I made some good local investments but some ridiculous ones, as well. Three worst: 1] my law partner and I invested heavily in the LCD patent for watches in the 70s. Trouble was the guy we invested with had already sold the patent to Bulova. Before the internet, there was a 2 week time frame before you could discover that, even by telephone to the PTO. His mother was our client. He snookered her too. She had twenty years on us but offered to have sex with us to show her regret. As gentlemen and scholars, we politely refused.

        2] We invested heavily in a restaurant begun by and run by the woman who had run the WH kitchen for LBJ. It was a good restaurant. It lost money no matter how big the crowds. My partner and I and two other investors took turns working evenings as tuxedoed doormen/hosts to try to figure out what was happening. One of the other investors caught prime steaks leaving with the head chef early one Sunday morning and the jig was up. But it was too late to turn the thing around without another investment round. The GP owner did not think she could replace the truly qualified chef/thief in less than several weeks and wanted to confront him but keep him. She could have over-ridden her limited partners, four of whom had become volunteer hosts [detectives], but we chose to prosecute the guy for theft of edible beef which was then a major crime in TX as the statute had not been changed since it was a cattle rustling statute. So that ended that.

        3] 9 condo units. The timing was bad. Bought in ’81, S&L and banking crisis in TX wiped me out of 8 units and cost me a $50K cash buyout to a bank that failed two days later to avoid foreclosure.

        And there were others. The biggest of the rest was a $20K loss for me – but it seemed like a good idea at the time.

        Also, there were winners. Until 1983 investing in Austin real estate was sheer genius regardless of one’s own relative acuity.

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  2. jnc4p, on July 6, 2020 at 10:25 am said:

    Next on the list:

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    • Brent Nyitray, on July 6, 2020 at 10:27 am said:

      I am starting to think Trump is going to win in a landslide, and the woke left / media will be scratching their heads wondering how…

      The left overreaches. The left always overreaches

      Liked by 1 person

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    • markinaustin, on July 6, 2020 at 10:57 am said:

      It seems to me that the truly sensible alternative is to add the other side of history to the story told in the Memorial. That is what they have done at The Hermitage. You learn about Jackson, ALL about Jackson, and it is truly history come to life. No reason not to add to the record at the Jeff, and make it a monument to our history that speaks through the ages.

      Kev has probably been to the Hermitage and if so I imagine he can second what I just wrote. I am sure there was a time when the Hermitage was all about the flawless hero warrior and father of democracy, and didn’t mention the Cherokee Nation, the Trail of Tears, his rebuff of the pleas of his friend Sam Houston, and his cruelty to his slaves.

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    • novahockey, on July 6, 2020 at 1:01 pm said:

      I don’t think the hatred of TJ is about his slaveholder status.

      if America is not a place, but an idea .. it’s that idea the hate. the pursuit of happiness. that is what really gets them going. that someone else has a different idea of happiness. or, even worse, might actually be happy and not angry all the time.

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    • ScottC, on July 6, 2020 at 1:10 pm said:

      Monticello is shrine enough for a man who wrote that “all men are created equal” and yet never did much to make those words come true.

      I hate this kind of ignorance. It’s a perfect demonstration of the general ignorance of Americans to the meaning of their founding documents and philosophy. That all men are created equal is not a proposition about what might be “made” to be true by human action. It is a claim about a universal, objective reality that, when recognized, should direct human action. The claim is either true, or it is not. It is not something Jefferson – or anyone – could work to “make” true.

      Liked by 1 person

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      • jnc4p, on July 6, 2020 at 1:19 pm said:

        ” It is not something Jefferson – or anyone – could work to “make” true.”

        I disagree. By precipitating a revolution that lead to the founding of the United States as a republic without a de jure hereditary aristocracy, Jefferson did in fact do a lot to make those words come true. And of course this also contributed to the French Revolution and the overthrow of the Ancien Régime. He just didn’t complete the task in his lifetime.

        The most profound kind of ignorance on display is that of the Vox and Salon set who believe that you can have a world that recognizes universal human rights if the American Revolution had never happened.

        Their goal isn’t a more balanced and accurate view of American history, but an exercise in propaganda similar to the “Lost Cause” narrative but just on the other side. Namely the 1619 narrative. In both worldviews, race is dispositive but the historical villains are flipped.

        Liked by 1 person

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        • novahockey, on July 6, 2020 at 1:50 pm said:

          ” Vox and Salon set who believe that you can have a world that recognizes universal human rights if the American Revolution had never happened.”

          “the arch of history bends toward justice … somehow by itself!”

          somewhat related, i’m convinced they’ve never read past the “We hold these truths to be self-evident” line of the declaration

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        • ScottC, on July 6, 2020 at 1:56 pm said:

          jnc:

          By precipitating a revolution that lead to the founding of the United States as a republic without a de jure hereditary aristocracy, Jefferson did in fact do a lot to make those words come true.

          No, those words were always true, even before the revolution. The revolution to overthrow a de jure hereditary aristocracy did not “make” men equal. It was justified by the fact that all men are by nature created equal.

          Recall that Jefferson made the claim well before the US was actually founded. He wasn’t projecting a desired for future. He was making a fact claim about the nature of existing reality. Jefferson didn’t think that the revolution would “make” men equal, any more than he thought that the government he was hoping to found would “create” rights. Governments, he said, exist to protect rights that naturally exist in all men. And it is this respect, ie that all men are endowed by their creator with certain inalienable rights, that all men are created equal, regardless of the type of regime under which they live. They are not “made” equal in this respect by the acts of men. It is a natural condition, a fact of reality. And it is this fact that justifies certain human actions….including things like freeing the slaves that Jefferson could not bring himself to do.

          If you think that all men were not created equal until after the American Revolution, then on what ground was the revolution itself justified?

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        • jnc4p, on July 6, 2020 at 1:57 pm said:

          “arc of history” and “right side of history” are invoked as the actions of some sort of deity that takes an active role in human affairs.

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        • jnc4p, on July 6, 2020 at 2:04 pm said:

          Scott, fair enough on the root philosophical argument.

          But as a rebuttal to Truscott’s point on it’s own terms, I think my point stands. Jefferson certainly wasn’t a passive bystander.

          Liked by 1 person

        • ScottC, on July 6, 2020 at 3:22 pm said:

          jnc:

          But as a rebuttal to Truscott’s point on it’s own terms, I think my point stands. Jefferson certainly wasn’t a passive bystander.

          I definitely agree. These people don’t seem to understand that their critiques of Jefferson only make sense in the context of the world built and a philosophy articulated by him.

          Liked by 1 person

        • markinaustin, on July 6, 2020 at 4:04 pm said:

          These people don’t seem to understand that their critiques of Jefferson only make sense in the context of the world built and a philosophy articulated by him.

          Yes. This.

          Liked by 1 person

      • Kevin S. Willis, on July 7, 2020 at 5:25 pm said:

        Monticello is shrine enough for a man who wrote that “all men are created equal” and yet never did much to make those words come true.

        But in terms of making outward reality reflect the fact, he made attempts. In the context of his time he was progressive. But everyone must be judged by the contemporary morality of not just the day but this very minute.

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  3. jnc4p, on July 6, 2020 at 2:08 pm said:

    Another good read today:

    The original Orwell piece referenced is worth reading on it’s own:

    https://www.orwellfoundation.com/the-orwell-foundation/orwell/essays-and-other-works/the-prevention-of-literature/

    This is still current:

    “In our age, the idea of intellectual liberty is under attack from two directions. On the one side are its theoretical enemies, the apologists of totalitarianism, and on the other its immediate, practical enemies, monopoly and bureaucracy.”

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    • ScottC, on July 6, 2020 at 11:40 pm said:

      [Hamilton] rallied support for a Constitution that considered a Black person to be three-fifths of a person…

      Pure, unadulterated ignorance.

      Liked by 1 person

      Reply
  5. lmsinca, on July 6, 2020 at 6:15 pm said:

    Hmmmmm, as a descendant of slave owners and men who fought and died in the Civil War, I’m conflicted. I’m also the descendant of a Revolutionary War Captain with 2 wives and numerous slaves. I think our history is important but I also think it’s time to somehow begin to rid ourselves of the so-called glory of the past.

    I thought this was an interesting read and I find it somewhat meaningful that even Nascar is attempting to make amends, if there is such a thing.

    To review, on the off chance that you, New York reader, are not up on your NASCAR: Bubba Wallace is the only Black full-time driver in the notoriously good ol’ boy world of American auto racing. He was also one of the leading voices, in the midst of the Black Lives Matter movement, pushing the sport to ban the Confederate flag from its events. (NASCAR, unlike most other major American sports leagues amid the pandemic, has been up and running for a few weeks now.) This led to a backlash from some — maybe even most — of the sport’s fans, including a few who rented a plane to circle above a NASCAR event displaying the flag and the phrase “DEFUND NASCAR.” The sport stuck to its stance, and Wallace was widely heralded and embraced by his fellow drivers. (One NASCAR truck series driver — who had never finished higher than ninth in a race — quit because the flag was banned and widely mocked for it.)

    https://nymag.com/intelligencer/2020/07/trump-cant-make-bubba-wallace-into-colin-kaepernick.html?utm_source=Sailthru&utm_medium=email&utm_campaign=Intelligencer%20-%20July%206%2C%202020&utm_term=Subscription%20List%20-%20Daily%20Intelligencer%20%281%20Year%29

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    • ScottC, on July 6, 2020 at 11:30 pm said:

      lms:

      but I also think it’s time to somehow begin to rid ourselves of the so-called glory of the past.

      I don’t understand what this means. What “so-called glory” exactly should we “rid” ourselves of? And why should we?

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    • markinaustin, on July 7, 2020 at 9:06 pm said:

      LMS, it is good to tell the whole story, of course, but the addition of the gory doesn’t necessarily lead to the edition of the glory.

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