TheMReport

TH E M R EP O RT | 45 SERVICING THE LATEST O R I G I NAT I O N S E R V I C I N G DATA G O V E R N M E N T S E C O N DA R Y M A R K E T "If the stock market suffers a major correction as a result, they can thank the Federal Reserve," he added. "The partial yield curve inver- sion following a 'dovish surprise' from the Federal Reserve recently is bearish for the stock market and that means investors should 'remain defensively positioned,'" Michael Wilson, Morgan Stanley's U.S Equity Strategist, told CNBC. Impact on the Mortgage Market A ccording to a Gallup Poll, about 39% of Americans think the economy is slowing down, while 17% think we're al- ready in a recession or depression. Commenting on the impact of an inverted yield curve on the mortgage market, Bauman told MReport the results are uncertain as of now. "On one hand, falling long-term interest rates are a major driver of falling mortgage rates. The average rate for a 30- year fixed rate mortgage has fallen from 4.4% on March 19 to 4.11% today. That's a 6.6% drop in the rate in less than a week. If rates maintain that downward mo- mentum, we can expect to see an uptick in mortgage applications." On the other hand, falling rates, Bauman indicated, "must be as- sessed against potential recession- ary conditions. If lenders perceive the likelihood of a recession— which is what the inverted yield curve is said to predict—lending standards may tighten, countering the effect of falling mortgage rates." "I, therefore, expect to see a short-term boost to the housing market, but whether this lasts depends on whether fears of an economic slowdown materialize," Bauman added. Kapfidze said, "In terms of housing, lower interest rates should be beneficial, but the tight- ening of standards we mentioned above works against this. So the outlook is quite unclear. In the near term, housing will get a boost, but if the yield curve re- mains inverted and the recession narrative takes hold, home sales will likely weaken." As reported in DS News in February, Realtor.com suggested that though some believe we will see a recession soon, the financial factors that helped instigate last decade's crash are very different in the current scenario. "We're at a record-low level of unemployment. The economy can't stay here," said Danielle Hale, Chief Economist at Realtor. com. She forecasts a recession beginning within the next two years. "This one will be mild," Hale added, stating that lower long-term rates "could portend a recession," but also "tend to mean lower mortgage rates which help boost buying power for homebuy - ers. Given the dearth of construc- tion in this recovery, housing is likely to fare reasonably well during the next recession." "We're just scared because of what happened last time. And that's not what's going to hap - pen again," said Lisa Sturtevant, a housing consultant and Chief Economist at Virginia Realtors. Addressing home prices in the wake of a possible recession, econo - mists say prices aren't expected to plummet, although they may dip in more expensive markets. Overall, price appreciation will likely just continue to slow. A cause of worry, however, in the wake of a recession is the shortage of housing. The pace of single-family home construction growth has recorded a decline from 9% in 2017 to about 3% in 2018. This is projected to decline further by 2% in 2019. Rent price growth is likely to slow with the exception of the luxury market, where landlords will have trouble finding tenants. Making its case as to why this time won't be another 2008, an NPR article published in early January this year, stated that in 2008, recession not only caused complete chaos in the housing market but also was directly caused by chaos in the housing market. This may have promoted the view that recessions and housing collapses are synony - mous. The article also pointed out that "it was a unique case, and today's housing market in many ways is the complete inverse of the housing market in the run-up to 2008." Mortgage Servicing's Report Card What did the OCC have to say about lenders' mortgage performance and portfolio? B anks serviced approxi- mately 16.9 million first- lien mortgages by the end of December 2018, accord- ing to the Q 4 Mortgage Portfolio and Performance report published by the Office of the Comptroller of the Currency (OCC). The $3.22 trillion in unpaid balances serviced by banks dur - ing the last quarter, the OCC reported, made up 31% of all outstanding mortgage debt in the United States. The report indi - cated that the overall mortgage performance across the country improved on an annual basis, with the percentage of mortgages that were current and performing at the end of the fourth quarter of 2018 at 95.8% compared with 94.5% the previous year. The fourth quarter saw an up - tick in foreclosures, with servicers initiating 29,515 new foreclosures marking a 3.5% increase over the previous quarter. However, new foreclosures declined 14.5% from a year earlier. Home forfeiture ac - tions during the quarter—complet- ed foreclosure sales, short sales, and deeds-in-lieu-of-foreclosure— also decreased 20.9% from a year earlier to 14,520. The report indicated a 21.2% de - crease in loan modifications over the previous year with servicers completing 20,256 loan mods during the quarter. Of these, 17,487, or 86%, "were combination modifications—modifications that included multiple actions affecting affordability and sustainability of the loan, such as an interest rate reduction and a term extension. Of the remaining, "2,636 loan modifications received a single action and 133 modifications were not assigned a modification type." Breaking down the combined modifications, the report indicated that 97.2% of these mods included capitalization of delinquent inter - est and fees, 38.3% included an interest rate reduction or freeze, 96.3% included a term extension, 1.2% included principal reduc - tion, and 13.9% included principal deferral. The OCC said Q2 2018 was the first quarter for which all loans modified during that quarter could have aged at least six months by December 31, 2018. As a result, of the 32,655 modifications that were completed during the second quarter of 2018, "servicers reported that 4,169, or 12.76%, were 60 or more days past due or in the process of foreclo - sure at the end of the month that they became six months old." The report indicated that the overall mortgage performance across the country improved on an annual basis,

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