Margin calls, the focus of books and movies like Margin Call, The Big Short, etc., during the financial crisis, are back!!
(Bloomberg) — The $16 trillion U.S. mortgage market — epicenter of the last global financial crisis — is suddenly experiencing its worst turmoil in more than a decade, setting off alarms across the financial industry and prompting the Federal Reserve to intervene.
Unlike last time, risky mortgages aren’t the cause. Instead, the coronavirus pandemic is threatening to make good loans go bad — and simultaneously sapping the market’s funding. There are fears that government efforts to shore up borrowers and financing won’t be enough and that mortgage and property investors again face massive losses.
Measures to slow the spread of the deadly disease are slamming the brakes on commerce, threatening to prevent companies from making payments on their leases and commercial mortgages. Companies are also firing employees, who won’t be able to keep up on their own rents and home loans. Mortgage industry veterans warn of a cascade of defaults.
At the same time, holders of mortgage-backed securities are fielding redemption requests from clients, margin calls from jittery counterparties and drops in their valuations, forcing the funds to solicit offers on billions in assets in emergency sales over the weekend. The pain continued Tuesday with Invesco Mortgage Capital Inc., a real estate investment trust that invests in mortgage-backed securities, also saying it’s no longer able to fund margin calls. If forced sales accelerate, bond prices could fall and put pressure on other investors to mark down or sell their holdings too.
Yes, Invesco Mortgage Capital is getting slaughtered, plunging from $18 on February 20th to $2.64 today.
The Fannie Mae to Gov’t 10 year has exploded indicating a troubled mortgage market.
Margin calls … they’re ba-ack!