Global central bankers pushed interest rates to historic lows in an attempt to stimulate global economies. Unfortunately, this had led to gorging on debt with global debt topping $258 trillion in Q1. And debt as a percentage of GDP of over 330% (thanks to Holger Zschaepitz).
But volatility has remained low. The USD Swaption ATM NVOL 3M (OIS) 1Mx10Y is below its 5-year average.
10-year Treasury Note volatility remains low as The Fed continues flood the market with liquidity. The good news is that mortgage rates are at historic lows.
More COVID = more economic shutdowns = more Fed intervention = lower mortgage rates.
Perhaps this should be the logo for the Mortgage Bankers Association.
(Bloomberg) — Federal Reserve Governor Lael Brainard, painting a dark picture of the U.S. economic outlook amid a resurgence of virus infections, said the central bank should pivot its forward guidance and asset purchases toward providing longer-run accommodation.
“A thick fog of uncertainty still surrounds us, and downside risks predominate,” Brainard said in remarks Tuesday to a virtual event hosted by the National Association for Business Economics.
“Fiscal support will remain vital,” she added. “Looking ahead, it likely will be appropriate to shift the focus of monetary policy from stabilization to accommodation by supporting a full recovery in employment and a sustained return of inflation to its 2% objective.”
You mean, even MORE stimulus that The Fed has already pumped into financial markets?
The latest report from the Mortgage Bankers Association released this morning shows that mortgage purchase applications rose 5.34% from the preceding week on a seasonally adjusted basis.
You can see that mortgage purchase applications rebounded from the Covid-19 dip as housing prices continue to rise. What makes this post-financial crisis rise in mortgage purchase applications interesting is the decline in the level of sub-660 FICO score originations.
Of particular note in the mortgage industry is the announcement that Quicken Loans (aka, Rocket Mortgage) will be going public.
(Bloomberg) — Rocket Companies Inc., the parent company of the mortgage giant founded by billionaire Dan Gilbert, filed for an initial public offering, disclosing an annual profit for the past three years.
Here is Dan Gilbert in happier times with forward LeBron James and an aging point guard Warren Buffett.
Mortgage lenders should rejoice at the continuing low level of 30-year mortgage rates and the 10-year Treasury yield.
The Covid-crisis can be seen in the following chart, starting in January 2020. It has been all downhill since January 1st in terms of rates and yields. With the exception of the blip in the Freddie Mac US Mortgage Market Survey 30 Year Homeowner Commitment rate around March 19, 30-year mortgage rates are barely above 3%.
The US Ultra Bonds futures price continues to trade at an ultra-premium.
The ultra premiums in ultra bond futures indicates that the Covid shutdowns are likely to return. Or continue to ravage the economy. And endless interference in markets by The Federal Reserve.
US 1-unit housing starts declined 17.8% YoY in May, another indicator of the damage done by the economic shutdown due to the Covid-19 epidemic.
1-unit housing starts YoY are back to 2006 levels where the ALT-A / subprime virus struck with far more damage.
Notice that The Federal Reserve didn’t react with rate cuts until Q4 2007 that continued through 2008. Notice that the US is back to 25 basis points again, but with 7.09 TRILLION on their balance sheet … and all we get is -17.8% YoY decline.
Meanwhile, mortgage purchase applications have rebounded nicely.
MBA purchase applications have rebounded nicely despite the government shutdown. But in spite of the historic (or hysteric) monetary stimulus from The Federal Reserve, the US in no where the housing bubble years.
Time for more snake juice?
Here is a video of Fed Chair Jerome Powell trying to cope with the blowback from Covid-19.
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.
• As of April 30, more than 3.8 million homeowners are now in forbearance plans, representing 7.3% of all active mortgages.
• Together, they account for $841 billion in unpaid principal and includes 6.1% of all GSE-backed loans and 10.5% of all FHA/VA loans.
• At today’s level, mortgage servicers would need to advance a combined $3 billion/month to holders of government-backed mortgage securities on COVID-19-related forbearances.
Another $1. 5 billion in lost funds will be faced each month by those with portfolio-held or privately securitized mortgages (some 6.7% of these loans are in forbearance as well).
• Ginnie Mae announced a pass through assistance program through which it will advance principal and interest payments to investors on behalf of servicers, and FHFA announced last week that P&I advance payments will be capped at four months for servicers of GSE-backed mortgages.
• Even so, given today’s number of loans in forbearance (and these numbers are climbing every day), servicers of GSE-backed loans still face nearly $8 billion in advances over that four-month period.
Fannie Mae and Freddie Mac have the majority of loans in forbearance with the FHA & VA in second place.
And the SEC football conference (Mississippi, Louisiana and Alabama) lead the nation in non-current mortgage percentage.
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.
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.
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.
Courtesy of the great Jesse from Jesse’s Cafe Americain!
According to the latest survey from the Mortgage Bankers Association (MBA), the Refinance Index decreased 19 percent from the previous week and was 144 percent higher than the same week one year ago. The seasonally adjusted Purchase Index decreased 12 percent from one week earlier. The unadjusted Purchase Index decreased 12 percent compared with the previous week and was 33 percent lower than the same week one year ago.
Yes, 33% lower than the same week a year ago.
And this was in spite of the historic drenching of the market by The Fed with liquidity and trillions in economic something by Congress.
(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.
Mortgage rates actually rose last week (yellow line) but will likely decline this week.
The biggest decline came in mortgage refinancing applications, down 33% WoW.