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 Housing Starts Crash In April Thanks To COVID-19 Lockdown (Despite Declining Mortgage Rates)

US housing starts in April crashed to their lowest level since 2015 despite near-record low mortgage rates.

housingstartsomg

1-unit starts declined 25.4% from March to April. But it is the 5+ unit starts (apartment) that suffered a 40.31% MoM decline.

aprilstats

It appears that The Fed’s snake juice isn’t working.

snakejuice

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.

DQ loans_0

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.

cmbs rate by vintage

“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?

cmbxbbb-

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

phantompunch

Oyster Stew! WTI Crude Spot Rises 21%, US Jobless Claims Up 4.43 Million (But Slowing), New Home Sales Decline -15.4% MoM In March

I feel like we are in the Three Stooges film “Oyster Stew.” Every time we look for good news, more bad news come out.

But here is some good news.

WTI Crude oil is up 21.26% this morning .. to $16.71 a barrel (still low).

commodthur

And while US jobless claims rose 4.43 million the past week, the US is several weeks past the peak. (Knock on wood).

peakpast

But back to crude. Saudi oil is still negative for heavy and medium crudes to the USA.

saoil

Now for the oyster eating the cracker.

US new home sales fell -15.4% MoM in March.

nhs154

As I said, oyster stew.

Screen Shot 2020-04-23 at 10.05.59 AM

US Banks Brace For Surge In Loan Losses (S&P 500 Bank / S&P 500 Index Back To Early 2009 Levels)

Here we go again?

With the economic shutdown thanks to the Wuhan virus, the Big Banks are in the US are preparing to be over, under, sideways, down.

(Financial Times) — Loan loss charges at six big American banks reached a total of $25.4bn in the first quarter. This marks a 350 per cent surge in collective provisions across Bank of America, Citigroup, JPMorgan Chase, Wells Fargo, Goldman Sachs and Morgan Stanley versus a year earlier, as charges soared to levels not seen since the financial crisis.

The change illustrates how banks are ramping up reserves to deal with anticipated loan problems among their clients, as top economists warn that the world economy has already fallen into recession. 

The provisions are additions to reserves so banks have enough in their rainy day fund to cover future losses.

Since the start of the year, US banks have been operating under a new accounting standard, dubbed “current expected credit losses”. It has changed how they calculate loan loss provisions, making it hard to compare the most recent charges with past performance. 

Screen Shot 2020-04-18 at 3.13.57 PM

Previously banks had to ensure reserves were enough to cover ‘incurred losses’, which meant they made provisions for loan losses only when customers actually missed payments.

Under the new accounting standard, banks have to make provisions based on a loan’s lifetime value. In practice, this amounts to predicting the future — a difficult task at the best of times, and nigh on impossible in the current environment, which bank executives describe as the most uncertain they have ever seen. 

It is little wonder that the S&P 500 banks index as a percentage of the S&P 500 index is back near its lowest level since early 2009.

bankssp500ratio

Despite The Fed’s massive intervention in the financial markets starting in late 2007,  but continues in force.

fedbalcrisis

The Fed couldn’t get the S&P Bank index / S&P index back to early 2007 levels with massive stimulus?

Fed Chairs Janet Yellen and Jerome Powell pose for recent Fed Chairs painting.

queenjanetprincejerry

 

 

 

MBA Mortgage Purchase Applications Decline 35% YoY

Mortgage applications increased 7.3 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending April 10, 2020.

oomagooma
The Refinance Index increased 10 percent from the previous week and was 192 percent higher than the same week one year ago. The seasonally adjusted Purchase Index decreased 2 percent from one week earlier. The unadjusted Purchase Index decreased 1 percent compared with the previous week and was 35 percent lower than the same week one year ago.

mbapnsaugh

On the bright side, most of the decline in purchase application occurred before last week.

So, it appears that no more snake juice is required.

snakejuice

Courtesy of the great Jesse from Jesse’s Cafe Americain!

JPMorgan Chase To Raise Mortgage Borrowing Standards As Economic Outlook Darkens

So much for The Fed’s attempts to lower rates and stimulate borrowing.

JP Morgan Chase is running away from the storm .. sort of.

NEW YORK (Reuters) – JPMorgan Chase & Co (JPM.N), the country’s largest lender by assets, is raising borrowing standards this week for most new home loans as the bank moves to mitigate lending risk stemming from the novel coronavirus disruption.

From Tuesday, customers applying for a new mortgage will need a credit score of at least 700, and will be required to make a down payment equal to 20% of the home’s value.

In other words, JP Morgan Chase is returning to good, old-fashioned lending standards … at least for the moment while jobless claims skyrocket.

jobclaimsf

JP Morgan Chase’s mortgage origination

jpmcorig

Of course, JPMC can always originate a conforming mortgage that can be sold to Fannie Mae and Freddie Mac. I assume that their new underwriting standards apply to loans held in portfolio..

Speaking of darkening economic outlook …

This is beginning to look like Fannie Mae and Freddie Mac are the last men standing.

lms

 

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

What Virus? MBA Mortgage Applications SOAR With Rate Declines (Particularly Refi Apps Up 55.43% WoW)

If you are watching panic at the Bank of Japan, European Central Bank, and Bank of England, you would think that the Spanish Flu from 1918 that killed between 17 and 100 million people was back.

cbrates

While we watch the DJIA shed another 800 points in the first 30 minutes of trading, mortgage applications for last week skyrocketed as is there was no coronavirus.

Mortgage applications rose 55.43% from the preceding week. Refinancing applications rose 78.585 (NSA) while mortgage purchase applications rose 7.21%, far less than refinancing applications.

mbacorona

Here is a chart of refinancing applications as mortgage rates tumble.

mbanoflu

Let’s see what happens with existing home sales in the next report.