MReport July 2020

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M R EP O RT | 43 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 Mortgage Market Off to Worst Start Since 2013 The Fed's $688 billion stimulus brought the worst reading since 2013. D espite the Federal Reserve injecting $688 billion of support into the mortgage mar- ket in March, the year-to-date excess return versus Treasuries for the Bloomberg Barclays U.S. MBS Index was -0.3% on Friday. This is the worst reading over a similar period since 2013, ac- cording to Bloomberg, when that reading was -0.6%. The report added that while April saw an excess return of 0.48%—mostly due to the $295 billion in support by the Fed—last month's $101 million in central bank brought a return of just 0.03%. Also, the April prepayment report saw aggregate conventional Fannie Mae 30-year speeds rise 26% following the prior month's 42% increase. Although May prepayment speeds are expected to decline between 10-15%. Another issue is the wave of forbearance after recent legisla- tion allowed homeowners to take advantage of these plans. As of May 17, servicers have seen 8.36% of their loans fall into forbear- ance, according to the Mortgage Bankers Association. The nationwide delinquency rate hit its highest single-month increase in history in April, ac- cording to the First Look at April mortgage performance data from Black Knight. According to Black Knight, some 3.6 million homeowners were past due on their mortgages as of the end of April (including the roughly 211,000 who were inactive foreclosure)—the highest number since January 2015. This is an increase of 1.6 million since March, the largest single- month jump on record. This number includes homeowners past due on mortgage payments who are not in forbearance, as well as those currently enrolled in forbear- ance plans and who did not make an April mortgage payment. The national delinquency rate nearly doubled to 6.45% from March, the largest single-month increase ever recorded, and nearly three times the previous record for a single month from back in late 2008. Delinquency increases in Nevada (+5.2%), New Jersey (+5.1%), and New York (+4.9%) led the states, while Miami (+7.2%), Las Vegas (+6.2%), and New York City (+5.4%) topped the 100 largest metro areas. Policy Implications of Mortgage Credit Tightening Former Freddie Mac CEO: Situation avoidable with the right policies. A s the economic impact of the pandemic contin- ues, one of the biggest issues to emerge in housing finance is the availability of mortgages. In a new paper by former Freddie Mac CEO Don Layton, he discusses the implica- tion that somehow much or even all of the tightening is illegitimate, a failure of government policy; that it should be largely if not completely avoidable with the right government actions; and that those actions should not require the kind of subsidies we are see- ing for small business or specific industries, like the airlines. Layton's new paper, "America's Housing Finance System in the Pandemic: The Causes and Policy Implications of Credit Tightening," examines how mortgages get made in 21st-century America, who sets the credit standards, why those standards are not fully immune to economic conditions. Layton reaches three conclu- sions: 1. The mortgage credit tightening we are seeing is much less of an issue than encountered in the prior financial crisis. 2. It is reasonable and appropriate that there should be tightening to a modest degree, even with the best possible government policy, as risks have gone up in the current economic environ- ment. 3. The tightening we are seeing is overwhelmingly a byproduct of the private sector, as it performs its major role in housing finance, behaving as one would expect in an economic downturn—and it would be even worse if the government played a lesser role than it currently does. "However, also exacerbating the tightening, and probably in a significant way, is the unintended consequence of the generous mortgage forbearance program established by the CARES Act in late March," Layton said. "This is because it applies not only to then- outstanding government-supported mortgage loans, for which the forbearance program was origi- nally designed, but to newly-made ones as well. This is explored in some depth, and is the cause of significant friction between the mortgage industry and the govern- ment mortgage agencies of Freddie Mac, Fannie Mae, and the Federal Housing Administration."

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