Cal Coast Financial

WHY are Rates so Volatile and increasing?
The New Stimulus Package is why, too many bonds and not enough investors to buy them. The market has a liquidity problem.

Fed Speak Shakes Markets
MAY 18, 2020JORDANREEDNEWS
Last Week in Review: Fed Speak Shakes Markets

Home loan rates remain near historic lows and have stabilized, thanks mainly to the Federal Reserve, as the central bank continues to purchase mortgage-backed securities on a daily basis.

The Fed also helped rates this past week in another way, but it may have been unintentional. Fed Chairman Powell spoke last Wednesday and uttered remarks that lifted uncertainty about the economic recovery. By saying the U.S. is facing an “extended period” of economic weakness, Stocks fell sharply, providing an improvement to rates.

The reality is the U.S. economic recovery is likely to be gradual as states re-open at a slower pace, while consumer demand may take some time to return to more normal levels. At the same time, we should expect the Fed, Treasury, and U.S. government to do whatever it takes to help the economy through this deep, yet temporary, recession — and revive it upon coming out of the other side of the virus.

The next couple of weeks are important to see whether the unemployment rate can decline in states that are re-opening, alongside a continued decline in cases.

Bottom line: Home loan rates are at all-time lows. Even all of the uncertainty and the sharp decline in Stocks could not push rates another leg lower this past week. Anyone with an opportunity to lock a 30-year mortgage, should do so.

Oversupply of Bonds and Unemployment
MAY 11, 2020JORDANREEDNEWS
Last Week in Review: Oversupply of Bonds and Unemployment

One week after home loan rates failed to improve further in the face of multiple Bond-friendly stories, such as low inflation, high unemployment claims, and the Fed’s continued commitment to purchase Bonds, we watched home loan rates tick up this past week.

Why?

Oversupply. The U.S. Treasury announced they will need to borrow $3 trillion through the third quarter of 2020 to pay for the economic stimulus package related to the coronavirus. In order to “borrow” the $3 trillion, the Treasury will issue a new 20-year Bond that will need to be purchased by investors.

Investors, at the moment, are showing early signs that rates will need to tick higher to meet the buying demand for this enormous new supply of Bonds. Early in the week, the 10-year yield hovered near .60% but ticked higher to .73% during the week and this weighed on mortgage-backed securities, which home loan rates are derived from.

On Friday, the Bureau of Labor Statistics reported that 20,500,000 were unemployed in April, lifting the unemployment rate to 14.7%. It was the worst Jobs Report in the history of the U.S.

Home loan rates didn’t improve in response to the horrible “oversupply” of unemployed shown in the Jobs Report. This is because the markets are forward-looking, and April’s Jobs Report is backward-looking.

Bottom line: The Bond market is more focused on the additional supply of Bonds that will need to be purchased and the cautious optimism seen in reopening parts of the U.S. economy. For this reason, consumers who have an opportunity to lock home loans at current all-time low rates would be wise to do so.

News | Apr 13 2020 09:44 EDT
Mortgage Payment FORBEARANCE is NOT Payment Forgiveness. Sounds like a great idea BUT...this articles
discusses why its not that simple.

House Republicans join growing call for servicer relief
Arnie Aurellano
By Arnie Aurellano,
Website content editor, Scotsman Guide

Capitol Building at night
SHARE
Add House Republicans to the growing list calling for the federal government to address mortgage liquidity concerns as forbearances continue to mount.

Twenty-one GOP representatives, led by Rep. Lee Zeldin, R-New York, co-signed a joint letter to Treasury Secretary Steve Mnuchin on Friday pushing for the creation of a liquidity facility to help servicers deal with the rising tide of forbearances during the coronavirus crisis. The letter is the latest call to action directed at the federal government concerning the liquidity issue, joining similar pushes from housing industry trade organizations, advocacy groups, and senators.

“Congress has correctly decided that a nationwide, broad scale forbearance program is needed, but we need to make sure this is done responsibly to avoid unintended consequences and market uncertainty,” said the letter. “The mortgage industry cannot shoulder the entire onus of government actions to protect American homeowners impacted by COVID-19 when it does not have access to needed liquidity to execute on those government actions.

The issue stems from provisions included in the CARES (Coronavirus Aid, Relief, and. Economic Security) Act allowing for homeowners with federally-backed housing loans to be given mortgage relief. Specifically, the CARES Act offers homeowners suffering financial hardship because of COVID-19 up to six months of forbearance on their mortgage payments, with a possible extension of that forbearance for another six months.

Industry estimates of the total financial impact of such forbearances have been massive. As such, the representatives’ letter calls for funds appropriated in the CARES Act to be used for funding the legislation’s forbearance provisions.

The letter makes special mention of the particular peril the pandemic has imposed upon nonbank lenders and smaller servicers, whose thinner reserves of funds are especially threatened by widespread, potentially drawn-out forbearances.

“While elevated take-up rates on forbearance may be somewhat more manageable for certain servicers affiliated with banks, which have more diversified lines of business, it is likely that these advancing requirements will be unsustainable for many nonbank mortgage servicers,” said the letter. “Even those who may already have access to liquidity will likely have to divert resources from other businesses that provide capital to the American households and businesses in order to cover strains in their servicing businesses. Servicers will eventually be reimbursed for these servicing advances, so this issue represents a liquidity concern for otherwise solvent entities in the chain of payments as well.”

Last week, comments made by Mark Calabria, head of the Federal Housing Finance Agency (FHFA), implied that any market share lost through the dissolution of such smaller entities could be absorbed by “larger players” in the lending industry. Many in the mortgage business perceived those remarks as dismissive of nonbank and smaller lenders’ role in the housing ecosystem, and several came forward with statements criticizing or diverging with Calabria’s comments.

“All [independent mortgage bank] servicers should receive access to advances or a liquidity facility — for the simple reason that Congress is asking them to act as bankers to fund consumers' missed mortgage payments under the new forbearance option, at a time when missed payments are also growing because of spiking unemployment,” said the Community Home Lenders Association, via a statement from executive director Scott Olson.

“This liquidity should be equitably available to all servicers, particularly smaller IMBs, since their continued participation in mortgage markets has proven to be a boon to consumers, through more competition and more personalized servicing than the big banks have historically provided.”

It’s a point on which the representatives penning this latest letter apparently agree.

“As we all learned from the past crisis, the best way to protect the American taxpayer would be to create a facility now – in hope that it never needs to be used – than to wait for a market disruption when it may be too late,” the letter said. “The mere creation of such a facility may provide a level of support to the market without its even being utilized.”

The letter was signed by Zeldin; Steve Stivers; Steve Stivers, R-Ohio; Ann Wagner, R-Missouri; French Hill, R-Arkansas; Bill Posey, R-Florida; Blaine Luetkemeyer, R-Missouri; Bill Huizenga, R-Michigan; Andy Barr, R-Kentucky; Scott Tipton, R-Colorado; Roger Williams, R-Texas; Tom Emmer, R-Minnesota; Peter King, R-New York; Barry Loudermilk, R-Georgia; Ted Budd, R-North Carolina; Anthony Gonzalez, R-Ohio; John Rose, R-Tennessee; Lance Gooden, R-Texas; Denver Riggleman, R-Virginia; William Timmons, R-South Carolina; and Van Taylor, R-Texas. All are members of the House’s Financial Services Committee.

For his part, Mnuchin acknowledged liquidity concerns during a Monday White House briefing. He said that a task force has specifically studied the servicer liquidity conundrum and that the Treasury Department has discussed the issue with the FHFA.

“We have all the appropriate people on it,” said Mnuchin.

“We’re very aware of the issue.”