NY, NJ Lead USA In Mortgage Forbearance (Forbearance Is NOT Forgiveness)

Forbearance allows troubled mortgage borrowers to delay payments.

If you have a federally-backed mortgage, you simply need to contact your lender and let them know you won’t be able to pay your mortgage bill due to the current public health crisis. Lenders are required to approve forbearances regardless of your delinquency status.

Additionally, you won’t need to provide documentation such as costly medical bills or evidence of a job loss to prove your hardship when you apply, although you will want to demonstrate it later.

Through the CARES Act, you have the right to request forbearance for up to 180 days, with the possibility of another 180 days if you’re still under financial distress. As part of the relief program, you will also be given a mortgage payment reduction option, where future make-up payments will be spread out over 12 months or added to your mortgage payment once the reduction period is over.

As of March 18, the law also includes a foreclosure moratorium of at least 60 days which prohibits lenders and services from taking foreclosure-related eviction action during this period.

WHERE is forbearance prevalent? New York and New Jersey, of course. They lead the nation in COVID-19 cases as well.

Forbearance is NOT forgiveness, just a temporary restructuring of mortgage debt.

The face of forbearance, NY governor Andrew Cuomo (former HUD Secretary under Clinton).

Mortgage Purchase Applications Rise 9% YoY Even With COVID-19!

According to the Mortgage Bankers Association, the Refinance Index decreased 0.2 percent from the previous week and was 176 percent higher than the same week one year agoThe seasonally adjusted Purchase Index increased 9 percent from one week earlier. The unadjusted Purchase Index increased 7 percent compared with the previous week and was 9 percent higher than the same week one year ago.

Mortgage refinancing applications declined slightly by -.23% despite near historic low mortgage rates.

Take that, COVID-19!

US New Home Sales Decline 6.2% YoY In April Despite Near-Record Low Mortgage Rates (Case-Shiller Home Price Index STILL Rising)

According to the US Census Bureau, sales of new homes fell 6.2% YoY in April.

No, it does not look like new home sales from the housing bubble burst of the ALT-A, private label MBS years.

Yes, near record low mortgage rates are helping to mitigate the horrid effects of the COVID-19 fiasco.

Home prices in March, according to the lagged Case-Shiller national home price index rose 4.4% YoY. COVID-19 epicenters Seattle and New York City both managed to see YoY gains in home prices in March. (Phoenix AZ is leading the nation in YoY home price growth at 8.2%, nearly twice the national average).

So far the COVID-19 epidemic does not look like the notorious housing bubble burst of the second half of the 2000-2010 decade of The Big Short frame. But the CMBX BBB- index of commercial mortgage-backed securities is getting crushed by retail, hotel and office losses.

Although this has nothing to do with real estate, this Bloomberg headline grabbed my attention: “Macron Pledges $9 Billion in Stimulus to Help French Carmakers.” Hey Macron, how about telling Renault, Citroën and Peugeot to make cars that buyers in US want to buy!

US Existing Home Sales Plunge 17.8% In April, Worst Since 2010 (Lower-end Housing Hit The Worst)

According to the National Association of Realtors (NAR), US existing home sales in April plunged 17.8% from March, the largest drop since 2010.

Existing homes sales MoM is the white line, the Mortgage Bankers Association 30-year rate is the blue line.

Given how unemployment is differentially hurting lower-wage workers, it is not surprising that existing home sales in the $0-$100,000 range fell 33% in April.

While $500k-$750k home sales fell by “only” 12.2%.

Existing home sales inventory remains low while median home price of existing home sales rose 2% from March to April.

US GDP Forecast To Decline -34.9% QoQ (S&P 500 Sez “Meh”)

Now ain’t this a kick in the head. The Covid-19 and the government shutdown response is leading to a crushing decline in US GDP for Q2 2020 of … -34.9% QoQ.

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The recent dismal wholesale trade report sent forecast Q2 GDP down -34.9% QoQ.

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The reaction to the declining US GDP? Meh.

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The good news? NMHC rent payment tracker finds 80.2% of apartment households paid rent as of May 6.

Worst Property Debt Crash in Years Looms for Workout Specialists (Fitch Says 26% of CMBS Borrowers Asked About Payment Relief)

First it was on-line shopping spearheaded by Amazon that helped crush physical retail space. Then the knock-out punch was the government shutdown of the the US economy.

(Bloomberg) — Emptied out malls and hotels across the U.S. have triggered an unprecedented surge in requests for payment relief on commercial mortgage-backed securities, an early sign of a pandemic-induced real estate crisis.

Borrowers with mortgages representing almost $150 billion in CMBS, accounting for 26% of the outstanding debt, have asked about suspending payments in recent weeks, according to Fitch Ratings. Following the last financial crisis, delinquencies and foreclosures on the debt peaked at 9% in July 2011.

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Special servicers — firms assigned to handle vulnerable CMBS loans — are bracing for the worst crash of their careers. They’re staffing up following years of downsizing to handle a wave of defaults, modification requests and other workouts, including potential foreclosures.

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“Everything is happening at once,” said James Shevlin, president of CWCapital, a unit of private equity firm Fortress Investment Group and one of the largest special servicers. “It’s kind of exciting times. I mean, this is what you live for.”

No Relief

A surge in residential foreclosures helped ignite the last financial crisis. Now, commercial real estate is getting hit because the economic shutdown has shuttered stores and put travel on ice.

Not all of the borrowers who have requested forbearance will be delinquent or enter foreclosure, but Fitch estimates that the $584 billion industry could near the 2011 peak as soon as the third quarter of this year.

There’s no government relief plan for commercial real estate. Bankers usually have leeway to negotiate payment plans on commercial property, but options for borrowers and lenders are limited for CMBS.

Debt transferred to special servicers from master servicers, mostly banks that handle routine payment collections, is already swelling. Unpaid principal in workouts jumped to $22 billion in April, up 56% from a month earlier, according to the data firm Trepp.

Make Money

Special servicers make money by charging fees based on the unpaid principal on the loans they manage. Most are units of larger finance companies. Midland Financial, named as special servicer on approximately $200 billion of CMBS debt, is a unit of PNC Financial Services Group Inc., a Pittsburgh-based bank.

Rialto Capital, owned by private equity firm Stone Point Capital, was a named special servicer on about $100 billionof CMBS loans. LNR Partners, which finished 2019 with the largest active special-servicer portfolio, is owned by Starwood Property Trust, a real estate firm founded by Barry Sternlicht.

Sternlicht said during a conference call on Monday that special servicers don’t “get paid a ton money” for granting forbearance.

“Where the servicer begins to make a lot of money is when the loans default,” he said. “They have to work them out and they ultimately have to resolve the loan and sell it or take back the asset.”

Hardball

Like debt collectors in any industry, special servicers often play hardball, demanding personal guarantees, coverage of legal costs and complete repayment of deferred installments, according to Ann Hambly, chief executive officer of 1st Service Solutions, which works for about 250 borrowers who’ve sought debt relief in the current crisis.

“They’re at the mercy of this handful of special servicers that are run by hedge funds and, arguably, have an ulterior motive,” said Hambly, who started working for loan servicers in 1985 before switching sides to represent borrowers.

But fears about self-dealing are exaggerated, according to Fitch’s Adam Fox, whose research after the 2008 crisis concluded most special servicers abide by their obligations to protect the interests of bondholders.

“There were some concerns that servicers were pillaging the trust and picking up assets on the cheap,” he said. “We just didn’t find it.”

Troubled Hotels

Hotels, which have closed across the U.S. as travelers stay home, have been the fastest to run into trouble during the pandemic. More than 20% of CMBS lodging loans were as much as 30 days late in April, up from 1.5% in March, according to CRE Finance Council, an industry trade group. Retail debt has also seen a surge of late payments in the last 30 days.

Special servicers are trying to mobilize after years of downsizing. The seven largest firms employed 385 people at the end of 2019, less than half their headcount at the peak of the last crisis, according to Fitch.

Miami-based LNR, where headcount ended last year down 40% from its 2013 level, is calling back veterans from other duties at Starwood and looking at resumes.

CWCapital, which reduced staff by almost 75% from its 2011 peak, is drafting Fortress workers from other duties and recruiting new talent, while relying on technology upgrades to help manage the incoming wave more efficiently.

“It’s going to be a very different crisis,” said Shevlin, who has been in the industry for more than 20 years.

Ya think?

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We will see shortly if this is a phantom punch or not.

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First Time Homebuyer Blues! GSEs Will Charge 5% To Purchase Loans From Lenders For First Time Homebuyers

According to the GSEs, they will charge a loan-level price adjustment of 500 basis points (5%) for loans where the borrower is a first-time homebuyer. For all other loans, the GSEs will charge 700 basis points (7%).

That means it will cost lenders either 5% or 7% of the loan’s value to sell the loan in forbearance to the GSEs.

That’s a steep cost. On a $200,000 loan to a first-time homebuyer, for example, it would cost the lender $10,000 to sell the loan, meaning the lender is losing money on that loan. And for a loan that touches the GSEs’ loan limit of $510,400, a lender could have to pay nearly $36,000 for a GSE to buy the loan.

On the other hand, the alternative would be for the lender to keep a delinquent loan on their books. This solution at least allows the lender to sell the loan and preserve some liquidity, as the FHFA noted.

Like Abner Jay, first-time homebuyers are so depressed.

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Margin Call! Dirt-Cheap U.S. Mortgages Thwarted by $5 Billion in Margin Calls (ETFs Next!)

As Ronald Reagan once said, “The most terrifying words in the English language are: I’m from the government and I’m here to help.” The same applies to The Federal Reserve.

(Bloomberg) — The Federal Reserve’s emergency rescue of the U.S. mortgage market should have set off celebration among lenders trying to keep up with demand from borrowers. Instead, executives at Quicken Loans got a hefty margin call.

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That was just a fraction of the pain the Fed unintentionally inflicted on lenders in mid-March when it announced plans to buy a massive amount of mortgage securities. The move, meant to steady the market, caught many lenders by surprise and tipped their routine hedges deep into the red.

It’s added to strains throughout the industry that have left the gap between mortgage rates and benchmark Treasuries the widest since 2009. Back then, bank failures and concerns about the housing market kept home loans from becoming cheaper for borrowers. Now, it’s obscure parts of the financial world that are holding back efforts to shave thousands of dollars from many Americans’ biggest expenses — their mortgages.

“The Fed came in trying to help, but they overshot,” said Phil Rasori, chief operating officer of Mortgage Capital Trading Inc., which says it handles hedging for about 20% of the mortgage market. He estimates margin calls initially drained as much as $5 billion from lenders before the Fed eased off, posing “an existential threat” to some nonbanks that operate on thin cash cushions, selling off loans as soon as they’re made.

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Mortgage lenders promise to lock in interest rates for borrowers weeks before loans are finalized, then hedge that risk by shorting mortgage-related securities. But the Fed’s buying drove up prices for those assets, turning the safeguards into sudden demands for cash. Quicken, among the largest U.S. mortgage lenders, met its obligations during the period, spokesperson John Perich said.

Then there was this headline: “New York Fed Says It Will Begin Buying ETFs in ‘Early May’”

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Is Jerome Powell really Sid Vicious? At least for Quicken.

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A tip of the hat to Jesse from Jesse’s Cafe Americain!

Shutdown! Dallas Fed Manufacturing Outlook Crashes To -73.7% (Help Me, Fauci!)

The government shutdown of the US economy is having devastating effects. For example, the Dallas Fed Manufacturing Outlook Level Of General Business Activity » (SA, % Balance/Diffusion Index) has crashed to its lowest level since before The Great Recession.

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Not surprisingly, Case-Shiller home prices in the Dallas TX area are pretty steady and seemingly immune to Dallas area unemployment rates. So far.

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Help us Fauci! End the economic lockdown.

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Mr. Blues? MBA Mortgage Purchase Applications Rise +3.21% WoW

With all the bad news out there thanks to the Covid-19 such as crude crashing to around $10 per barrel, it is always good to get some good economic news. No more Mr. Blues … for at least the mortgage market for last week.

MBA mortgage purchase applications rising 3.21% WoW.

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The US is still on lockdown, but at least MBA mortgage purchase application rose last week 3.21% WoW.

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The MBA applications index is a survey, so 7+7 doesn’t necessarily equal 14. 

Let’s see what the little Fed book has to say about interest rates this week.

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