Better Call Jerome! Mortgage Purchase Applications Drop 10.33% WoW Despite Rate Decline As Initial Jobless Claims Hit 6.65 Million

Better Call Jerome (Powell)!

Yesterday, the Mortgage Bankers Association released their weekly mortgage applications index … and it was dismal for mortgage purchase applications.

Mortgage purchase applications, generally peak each year in mid-April to May, crashed prematurely in late-March by 11.3% WoW.

mbapfl

One reason for the decline is, that in spite of a mortgage rate decline, initial jobless (unemployment) claims hit a historic high of 6.65 million.

histsurge

Yes, it is hard to shop for a home in a virus lockdown.

Mortgage refinancing applications, on the other hand, soared as the mortgage refinancing threshold has been reached.

mbarefiugh

Lenders better call Jerome (Powell) for more QE!

flubast

bcsa

Mortgage REITs Collapse By More Than 50% Before Slight Rally

Mortgage Real Estate Investment Trusts (MREITs) got clobbered starting February 20th and declined by over 50% before a small rally after the Fed/Congressional bailouts.

mortgreitbounce

Year-to-date, mortgage REITs are down over 50%.

mreitytd

The Fidelity and Vanguard bond indices didn’t plunge as far and had a better rebound effect after the bailouts.

back

Equity REITs had a plunge and rebound similar to the Dow.

indunareit

Mr. Freeze is still around for mortgage REITs.

mrfreeze

The Fed’s Bigger Boat! Is The Fed’s Cure Worse Than the Covid-19 Virus?

Apparently, The Federal Reserve and US Treasury think they need a bigger boat!

(Bloomberg) — The economic debate of the day centers on whether the cure of an economic shutdown is worse than the disease of the virus.  Similarly, we need to ask if the cure of the Federal Reserve getting so deeply into corporate bonds, asset-backed securities, commercial paper, and exchange-traded funds is worse than the disease seizing financial markets. 

In just these past few weeks, the Fed has cut rates by 150 basis points to near zero and run through its entire 2008 crisis handbook. That wasn’t enough to calm markets, though — so the central bank also announced $1 trillion a day in repurchase agreements and unlimited quantitative easing, which includes a hard-to-understand $625 billion of bond buying a week going forward. At this rate, the Fed will own two-thirds of the Treasury market in a year.

But it’s the alphabet soup of new programs that deserve special consideration, as they could have profound long-term consequences for the functioning of the Fed and the allocation of capital in financial markets. Specifically, these are:

CPFF (Commercial Paper Funding Facility) – buying commercial paper from the issuer.

PMCCF (Primary Market Corporate Credit Facility) – buying corporate bonds from the issuer.

TALF (Term Asset-Backed Securities Loan Facility) – funding backstop for asset-backed securities.

SMCCF (Secondary Market Corporate Credit Facility) – buying corporate bonds and bond ETFs in the secondary market.

MSBLP (Main Street Business Lending Program) – Details are to come, but it will lend to eligible small and medium-size businesses, complementing efforts by the Small Business Association.

To put it bluntly, the Fed isn’t allowed to do any of this. The central bank is only allowed to purchase or lend against securities that have government guarantee. This includes Treasury securities, agency mortgage-backed securities and the debt issued by Fannie Mae and Freddie Mac. An argument can be made that can also include municipal securities, but nothing in the laundry list above.

So how can they do this? The Fed will finance a special purpose vehicle (SPV) for each acronym to conduct these operations. The Treasury, using the Exchange Stabilization Fund, will make an equity investment in each SPV and be in a “first loss” position.

What does this mean? In essence, the Treasury, not the Fed, is buying all these securities and backstopping of loans; the Fed is acting as banker and providing financing. The Fed hired BlackRock Inc. to purchase these securities and handle the administration of the SPVs on behalf of the owner, the Treasury.

In other words, the federal government is nationalizing large swaths of the financial markets. The Fed is providing the money to do it. BlackRock will be doing the trades.

Here is part of the mayhem The Fed/Treasury are trying to mitigate. The CitiMortgage Alternative Loan Trust 2007-A4 asset-backed security.

4644BF5FDF61427D841C68972954BCE2

Yes, the US Treasury curve is now below 0.75% from 10 years in, including negative yields on most Treasury bills.

fitflu

The US Treasury actives curve and On/off the run curves are under 1% at 15 years and in.

ustugh

Welcome to Amity Island, in a shutdown over the Corona-19 virus.

amity

Mortgage Apps Crash Most Since 2009 (Covid-19 Lockdown Edition)

(Bloomberg) — U.S. loan applications for buying and refinancing homes plunged last week by the most since the global financial crisis, amid coronavirus shutdowns and related financial turmoil that pushed borrowing costs higher.

The Mortgage Bankers Association’s index of applications fell 29.4% in the week ended March 20, the biggest decline since early 2009. Home-purchase applications dropped by 14.6% while refinancing applications plummeted 33.8%.

The average contract rate on a 30-year fixed mortgage increased 8 basis points to a two-month high of 3.82%, despite the Federal Reserve cutting the benchmark interest rate to near zero.

The decline in applications is an early sign suggesting home sales will slow and that refinancings are coming off a spike. That follows other data indicating a precipitous dropoff in business activity this month as stores and schools shutter to prevent the spread of the virus.

Yes, MBA mortgage applications fell the most since 2009 and the financial crisis.

Screen Shot 2020-03-25 at 10.51.44 AM

Mortgage rates actually rose last week (yellow line) but will likely decline this week.

freddie30gt10

The biggest decline came in mortgage refinancing applications, down 33% WoW.

Screen Shot 2020-03-25 at 11.01.45 AM

Mortgage purchase applications dropped 14.64% WoW.

mbastatscovid

Mortgage Bonds Rattle Wall Street Anew With Invesco Joining Pain (Fannie Spread To Gov’t SOARS)

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.

ivreq

The Fannie Mae to Gov’t 10 year has exploded indicating a troubled mortgage market.

fnrsp

Margin calls … they’re ba-ack!

theyveback

Housing and COVID-19 (Existing Home Sales Rise 6.5% In February) -30% Likely In March 😩

The US housing and residential mortgage market have benefitted from the dreaded COVID-19 virus … in the sense that the 10-year Treasury yield and contemporaneous mortgage rates (30-year) have fallen since September 2019 (pre-COVID-19 breakout).

ehsflu

But the recent EHS numbers are for February (+6.5% MoM), not March. Expect around a 30% decline in existing home sales for March.

Here is a Washington DC area Realtor in action!

coronalisa

The Morning After! US Treasuries Surge, Mortgage Rate Spread Highest Since Q4 2008

It is the morning after the Fed panicked and lowered its lower bound for The Fed Funds Target rate to … 0%. Here is Fed Chair Jerome Powell calling to The Fed to take evasive action!

The result? US Treasuries yields are falling like a rock. US Treasury 10Y yields are down around 20 basis points this morning.

wbmmondaycv19

And unless lenders lower their 30-year mortgage rates, the spread between Bankrate’s 30 year average mortgage rate and the 10 year Treasury yield is at its highest level since Q4 2008, the epicenter of the financial crisis.

historicspeead

This morning before the US equities markets open, Europe is already down around 7% – 8%.

eurocv19

Here is Fed Chair Jerome Powell wishing us all the best!

happynewyear

S&P 500 SINKS: SIX-DAY ROUT EXCEEDS 10% (Pending Home Sales UP 6.7% YoY)

Another day, another -500 point opening on the S&P 500 index.

This time, the S&P 500 index led to a -10% decline over the past 6 days. Ain’t that a kick in the head!

spxyikes

The 10-year Treasury yield has dropped … again … to its lowest point in modern history.

gt10spx

US pending home sales YoY are a recipient of declining 10-year Treasury yields and 30-year mortgage rates.

phsgt10

 

US Treasury And Swaps Curves Remain Sagging, Jaguar-Land Rover To Issue US Dollar Bonds, Jupiter Moon Europa ‘Almost Certainly’ Home To ‘Octopus-like Aliens’

As we close out the week, we can see that the US Treasury actives curve, the on-the-run/off-the-run curves and the US dollar swaps curves are all generally upward sloping, but sagging (downward sloping) at the short-end.

tcurvesswaps

And now we have Dennis Reynold’s favorite car company issuing Eurobonds.

(Bloomberg) — Jaguar Land Rover Automotive Plc is meeting investors in the U.S., ahead of a potential sale of new bonds, days after warning the coronavirus was impacting its businesses.

The luxury carmarker has hired Bank of America Merrill Lynch to sound out interest in an issue of debt with an eight-year maturity, according to people familiar with the matter who asked not to be named because they’re not authorized to speak publicly.

Investors have said they would consider ordering bonds offering yields between 7.5% and 8%, one of the people said.

A spokeswoman for Jaguar Land Rover did not respond to a request for comment. Officials at BAML declined to comment on the deal.

The maker of the Land Rover Discovery SUV is scheduled to repay the equivalent of about $1.2 billion of maturing bonds over the next two years, including a $500 million note due in March 2020.

Here is The Gang with Dennis Reynolds driving his beloved Range Rover.

rangeroveralk

Lastly, Jupiter moon Europa ‘almost certainly’ home to ‘octopus-like aliens’.

Perhaps she watched Galaxy Quest before penning the article.

aliens