It’s Now Virtually Impossible To Get A Bank Loan As Lending Standards Soar

by Tyler DurdenTue, 08/04/2020

One quarter ago we pointed out something concerning: shortly after JPMorgan reported that its loan loss provision surged five fold to over $8.2 billion for the first quarter, the biggest quarterly increase since the financial crisis, in preparation for the biggest wave of commercial loan defaults since the financial crisis (a number which in the latest quarter surged to $10.5 billion along with all other banks’ loan loss provisions)…

… the bank hinted that things are about to get much worse when it first halted all non-Paycheck Protection Program based loan issuance for the foreseeable future (i.e., all non-government guaranteed loans) because as we said “the only reason why JPMorgan would “temporarily suspend” all non-government backstopped loans such as PPP, is if the bank expects a default tsunami to hit coupled with a full-blown depression that wipes out the value of any and all assets pledged to collateralize the loans.”

Shortly after, the bank also said it would raise its mortgage standards, stating that 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, a dramatic tightening since the typical minimum requirement for a conventional mortgage is a 620 FICO score and as little as 5% down. Reuters echoed our gloomy take, stating that “the change highlights how banks are quickly shifting gears to respond to the darkening U.S. economic outlook and stress in the housing market, after measures to contain the virus put 16 million people out of work and plunged the country into recession.”

Finally, just days later, JPM also exited yet another loan product, when it announced that it has stopped accepting new home equity line of credit, or HELOC, applications. The bank confirmed that this change was made due to the uncertainty in the economy, and didn’t give an end date to the pause.

In short, JPM appeared to be quietly exiting the origination of all interest income generating revenue streams over fears of the coming recession, which prompted us to ask  “just how bad will the US depression get over the next few months if JPMorgan has just put up a “closed indefinitely” sign on its window.

On Monday, we got confirmation that it was not just JPMorgan but all US commercial  banks that are making the issuance of almost all new credit (with one notable exception) virtually impossible, when the Fed’s July senior loan officer survey showed that banks tightened lending standards across the board for C&I (commercial and industrial loans), CRE (commercial real estate), consumer (credit card and auto loans) and residential real estate (RRE) loans. The loan standards for most products – such as C&I loans, residential mortgages and credit cards – were hiked so much they nearly matched the standards during the financial crisis when it was virtually impossible to get any new loans.

This was the second quarter in a row in which loan officers reported sharply tighter financial conditions.

Just as concerning, demand for many loan products also slumped, and in the case of auto loans to record lows, with the exception of jumbo (both conforming and non-confirming) loans, which were roughly flat with demand boosted by record low interest rates.

Here are the details:

According to the July Fed’s Senior Loan Officer Opinion Survey (SLOOS), lending standards for commercial and industrial (C&I) loans tightened in the second quarter with a near record 71% of banks on net tightened lending standards for large and medium-market firms (vs. only 42% on net in the previous quarter), while 70% of banks on net tightened lending standards for small firms (vs. 40% on net in the previous quarter). 59% of banks on net increased spreads of loan rates over the cost of funds for large firms, while 54% on net increased spreads for small firms. In short, anything that is not explicitly guaranteed by the government such as PPP loans, banks won’t go near with a ten foot pole for one simple reason: they have zero visibility if and when they will get repaid.

For banks that tightened credit standards or terms for C&I loans or credit lines:

  • 22% cited a deterioration in the bank’s capital position as playing a role,
  • 97% cited a less favorable or more uncertain economic outlook,
  • 85% cited a reduced tolerance for risk,
  • 31% cited decreased liquidity in the secondary market for loans,
  • 7% cited a deterioration in the bank’s own liquidity position,
  • 26% cited increased concerns about the effects of legislative changes, supervisory actions, or changes in accounting standards.

More ominously for a consumer driven economy, demand for C&I loans from large- and medium-sized firms weakened after strengthening in Q1. 23% of banks on net reported weaker demand for C&I loans for large and medium-market firms, compared to 8% on net reporting stronger demand in the previous survey.

The biggest hit was for commercial real estate (CRE) loans, where standard tightened significantly in Q2. 81% (+29pp) of banks on net reported tightening credit standards for construction and land development loans, 78% (+26pp) on net reported tightening standards for loans secured by nonfarm nonresidential properties, and 64% (+15pp) on net reported tightening lending standards for loans secured by multifamily residential properties. Demand for CRE loans fell significantly across all three categories.

While demand for mortgages rose modestly, banks made it more difficult to get a mortgage by significantly tightening lending standards for mortgage loans. Lending standards for GSE-eligible (+53pp to +55%), non-jumbo, non-GSE eligible (+48pp to 59%), Qualified Mortgage jumbo (+50pp to 69%), non-Qualified Mortgage jumbo (+55pp to 70%), non-Qualified Mortgage non-jumbo (+49pp to +64%), and subprime (+29pp to t43%) mortgages all tightened. In other words, all those pleading the case that housing is exploding due to surging loan demand, are forgetting that there is also supply they need to consider, and contrary to conventional wisdom, banks have rarely been less willing to hand out mortgage loans.

Finally, banks’ willingness to make consumer installment loans declined significantly in Q2 (-41% on net vs. -20% on net previously). At the same time, credit standards for approving credit card applications tightened (+72% on net vs. +39% previously), while a modest share of banks also tightened standards for auto loans (+55% vs. +16% previously). Demand for credit card loans declined (-65% on net vs. -23% previously), as did demand for auto loans (-49% vs. -35% previously).

Fed Stands Pat, Rates Flat By HSH MARKET TREND

July 31, 2020 — As we pass the peak of summer and start the all-too-fast run toward Labor Day and autumn shortly thereafter, all we can do is watch the time pass and hope that each passing day brings us closer to a conclusion of the pandemic. Presently, that remains a distant goal, so we must continue to slog through these unusual times down an unclear path, and amid ongoing economic and social wreckage the coronavirus has brought.

The partially-open economy here and across the globe needs all manner of support; central banks around the world have responded as best they can and political bodies have chimed in with as much fiscal assistance as they can manage, but more will yet be needed to tide many over these difficult periods. Here in the U.S., competing proposals to spend anywhere from 1 to 3 trillion more future tax dollars need to be reconciled by Congress, and soon, but sharp divisions in what to support and by how much between the political factions make the timing of new fiscal help unclear. As the election is less than 100 days away, both sides would like to get a deal in place soon, but what compromises can be made are unclear. 

The Federal Reserve met this week in a two-day, policy-setting meeting. For the moment at least, the outcome was simply a continuation of existing policies of short-term interest rates near zero, maintaining “at least” the current level of purchases of Treasuries and Mortgage-Backed Securities for the foreseeable future and maintaining its other asset-backing and lending facilities until at least the end of the year. “The path of the economy will depend significantly on the course of the virus”, said the statement that closed the meeting, and without having a sense of how that will play out, the best the Fed can do at the moment is to remain “committed to using its full range of tools to support the U.S. economy in this challenging time, thereby promoting its maximum employment and price stability goals” even as they wait to see what kind of new fiscal supports Congress can engineer. The size, shape and form of that may in turn dictate what (if anything) the Fed will need to do next. 

Orders for durable goods climbed by 7.3% in June, building on a 15.1% increase from May. As has been the case with other data series, a couple of good months makes a dent into but doesn’t erase the plummet from the March-April pandemic shutdown. When weighed against year-ago levels, orders for durable goods are still 12.7% below last June, and the year-over-year comparison has been a negative one in five of the last six months. Still, any signs of a pickup in activity are of course welcome, and the measure of orders outside of defense and aircraft (a proxy for business-related spending) strengthened a bit, rising 3.3% for June and improving on May’s 1.6% uptick. 

Factory activity did revive somewhat in June after a COVID-19 slumber, and of late, there have been more signals that July has built on that progress. The latest came from a local review of factory activity in the Federal Reserve Bank of Richmond’s district, where their gauge of manufacturing rose by 10 points to a value of 10, this indicator’s best showing since January. A submeasure that tracks new orders edged higher, adding two points to land at a reading of 9, while another that measures labor activity moved up three to -3, an improvement, but the fifth consecutive below par reading, so both the trend and the current level of employment activity remain weak. 

With mortgage rates at or near record lows on a number of occasions, it’s to be expected that home sales have picked up, even with the coronavirus making like challenging for buyers and sellers alike. We learned last week that existing home sales for June (reflective of activity in late April most of May, when things were re-opening) played a bit of catch-up, rising by 20.7% to 4.72 million (annualized) units sold after a three-month series of declined. This week, the National Association of Realtors Pending Home Sales Index posted a gain of 16.6 percent in June over May. This indicator tracks signed contracts; not all contracts will make it through to closing. However, if they did, this would suggest that sales will kick higher for July and likely August, too, and this would put the annual run rate of sales in the mid-5 million range — about where they were to start the year and before the pandemic made a mess of things.

New applications for mortgages softened a bit in the week ending July 24, but as this is typically the height of vacation season and mortgage rates have been essentially in the same small range for weeks, there’s really not a lot of urgency for borrowers to jump in for a refinance, and purchase activity remains more throttled by a lack of inventory to buy than not. According to the Mortgage Bankers Association, overall applications for mortgage credit slipped 0.8%, with those for purchase-money mortgages easing 1.5% and refinances by 0.4% for the week. 

Consumer moods seem to be showing a bit of rebound fatigue. As measured by the Conference Board, Consumer Confidence flagged a little in July, as their barometer dropped 5.7 points to land at 92.6 for the month. Although improved over the depths of the shutdown, this indicator remains well below pre-pandemic levels in February where it notched a reading of 132.6 before the bottom fell out. Sub-indexes that cover near- and far-term confidence moved in different directions; current conditions in July were rated more favorably, sporting a rise of 7.5 points to 94.2, but this is still only a little better than half the January level despite two months of gains in a row. Expectations for the future did dim appreciably, though, and posted a 14.6 point fall to drop to 91.5, a value close to March lows. Buying plans for autos remained steady, as did those for appliances, while interest in purchasing houses increased. Record low mortgage rates are likely the cause of that despite the difficult economic climate for many. 

The final July review of Consumer Sentiment from the University of Michigan also revealed a less optimistic assessment. The headline sentiment indicator slid by 5.6 points, landing at 72.5 for the month, just a whisker above pandemic lows. Current conditions were rated less favorably, with the 4.3-point decline dropping this component to 82.8, while the longer-term outlook darkened rather a bit more, with a 6.4-point fall leaving the forward assessment at 65.9, matching the pandemic low set just two months ago. The fresh outbreak of coronavirus across a number of states was of course the reason for the fall in enthusiasm, and an murky path for school and university re-openings is probably causing additional anxiety, too. Softer consumer sentiment may presage some curtailment in spending in the coming months.

The latest report covering the nation’s Gross Domestic Product came in about as expected — horrific. The second quarter of 2020’s advance review for GDP was one for the record books, but not in a good way, as the annualized decline for the period was 32.9 percent. With the decline in output came a collapse in prices, too, with Personal Consumption Expenditure prices shifting from +1.3% in the first quarter to -1.9% in the second; so-called “core” PCE (a measure which eliminates many highly-volatile components) also did an about-face, dropping from +1.6% in the first stanza of 2020 to -1.1% in the second. It’s hard to put a good face on such an awful report, but if anything, initial estimates when the pandemic shutdown first started to take effect were indicating a GDP in the -50% range, so there has been a bit of improvement since then. Given the uneven nature of the re-openings of the economy and now new restrictions in some places, it’s hard to reckon what Q3 GDP might look like, but even with marked improvement across a number of components of the economy, a still-negative but less-severe number might be all we can hope for at this point. 

That the outlook for the third quarter has dimmed a bit can easily be seen in high-frequency readings of the labor market. Initial claims for unemployment benefits essentially stopped improving seven weeks ago; in fact, over that period, initial claims have declined by a cumulative 132,000 — about one third as much as was seen eight weeks ago (week of June 6) when 331,000 fewer applications were filed around the country. Worse, the last two weeks have seen increases rather than decreases, so the trend has stopped improving altogether. With 1.434 million folks filing for help in the week ending July 25, hundreds of thousands more getting special Pandemic unemployment support and 17.1 million people receiving continuing checks it’s quite clear that a healthy labor market remains a long-distant goal, and that if the economy gets its legs under itself before too many businesses disappear or permanently downsize their workforces.

Personal incomes declined in June, sliding by 1.1% as government support payments continue to fade after an April boost. Wages did manage a second solid increase, rising 2.2%, and other components of income such as business-owner incomes gained with the re-opening of businesses in many places. Drags on income included sliding rental and asset-generated income, but the largest drag was another 8.9% decline in transfer payments (stimulus checks and other such supports). With labor markets still very weak, federal income support will continue to be needed to keep the economy moving at all. Despite lessening incomes, folks felt better about spending, and overall personal outlays rose by 5.6%; at least a portion of dollars available to support that spending came from savings, and with more outgo then income, the nation’s rate of savings dropped back to a still-significant 19% (from an unheard-of 24.2% in May). As measured by personal consumption expenditures (PCE), inflation edged a little higher in June, rising by 0.4%, but core PCE was flat at 0.2% for the month, but the Fed and investors will be ignoring inflation signals for a good long while. 

The cost of keeping an employee on the books rose 0.5% in the second quarter, according to the latest Employment Cost Index. That was a slight retreat from a 0.8% increase in total compensation seen in the first quarter. Wages edged slightly higher, rising 0.4%, while benefit costs rose 0.8%. Over the last year, the annualized ECI is running at a mild 2.7% and seems unlikely to press higher given current labor market conditions. 

Although there continues to be a fair bit of downward pull on mortgage rates, they remain stubbornly tethered at about present levels. Presently, the balance between the poor economic climate and Fed policy stance and bond-buying programs that should be pulling rates down is being offset to a nearly equal degree by the risks of making, servicing and investing in mortgages. Although the number of mortgages in forbearance programs continues to decline ever-so-gently, storm clouds of potential future loss remain prominent, what with unemployment at extraordinary levels and the amount and duration of any future fiscal support for homeowners and renters still unclear. Even if an effective COVID-19 vaccine was announced tomorrow, it will take a year or more to distribute it on a wide enough basis to do much good. Between now and then, there remains a lot of economic difficulty to endure, and this likely spells continuing trouble for participants in the mortgage market, whether homeowner or investor. 

For next week, we think there is a good probability that we’ll see at least a small decline in mortgage rates. Any move of more than a basis point in the averaged offered rate for a conforming 30-year FRM as reported by Freddie Mac will be a new record, and that’s probably what we’ll see come next Thursday morning. Whatever the decline may be, it would likely be a whole lot more if risks were abating, but new record lows will have to do, no matter how small the move into new territory it may be.

Commercial Mortgage Delinquencies Near Record Levels By Tyler Durden 7/20/2020

Delinquency rates across commercial properties have shot up faster than at any other time.

As thousands of restaurants, hotels, and local businesses in the U.S. struggle to stay open, delinquency rates across commercial mortgage-backed securities (CMBS) – fixed income investments backed by a pool of commercial mortgages – have tripled in three months to 10.32%.

As Visual Capitalist’s Dorothy Neufeld notes, in just a few months, delinquency rates have already effectively reached their 2012 peaks. To put this in perspective, consider that it took well over two years for mortgage delinquency rates to reach the same historic levels in the aftermath of the housing crisis of 2009.

Storm Rumblings

While there is optimism in some areas of the market, accommodation mortgages have witnessed delinquency rates soar over 24%.

Amid strict containment efforts in April, average revenues per room plummeted all the way to $16 per night—an 84% drop.

Similarly, retail properties have been rattled. Almost one-fifth are in delinquencies. From January-June 2020, at least 15 major retailers have filed for bankruptcy and over $20 billion in CMBS loans have exposure to flailing chains such as JCPenney, Neiman Marcus, and Macy’s.

On the other hand, industrial property types have remained stable, hovering close to their January levels. This is likely attributable in part to the fact that the rise in e-commerce sales have helped support warehouse operations.

For multifamily and office buildings, Washington’s stimulus packages have helped renters to continue making payments thus far. Still, as the government considers ending stimulus packages in the near future, a lack of relief funding could spell trouble.

Weighing the Impact on U.S. Cities

How do delinquency rates vary across the top metropolitan areas in America?

Below, we can see that the delinquent balance and delinquency rates vary widely by city. Note that this data is for private-labeled CMBS, which are issued by investment banks and private entities rather than government agencies.

Despite the New York city metropolitan area having a delinquent balance of $7 billion, its delinquency rates fall on the lower end of the spectrum, at 7%. New York alone accounts for 18% of the total balance of private-label CMBS.

By comparison, the Syracuse metropolitan area has an eye-opening delinquency rate of 69%. Syracuse is home to the shopping complex, Destiny USA, which is facing tenant uncertainties due to COVID-19. The six-story mall attracts 26 million visitors annually.

Like the overall market, delinquencies are being driven by accommodation and retail properties across many of these U.S. metropolitan areas.

What Comes Next

What happens when delinquency rates get too high?

Often, when borrowers do not make payment after a reasonable amount of time, they enter into default. While time ranges can vary, defaults typically take place after at least 60 days of nonpayment. Between May and June, defaults in the CMBS market surged 792% to $5.5 billion.

As effects reverberate, properties could eventually fall into foreclosure. At the same time, institutional investors who own these types of securities, which include pensions, could begin seeing steep losses.

That said, the Federal Reserve has set up mechanisms to purchase CMBS loans with the highest credit quality. This is designed to inject liquidity into the mortgage market, while also financing small and mid-sized properties that house small businesses. In turn, this can enable the employment of millions of Americans.

Of course, it remains to be seen whether the mortgage market will face a sustained downturn akin to the financial crisis, or if the temporary decline will soon subside.

Terrible Two’s BY HSH MARKET TREND 07/17/2020

After flirting with the 3% mark for a number of weeks, mortgage rates finally eased enough to drop into the upper two percent range for the first time. To be most accurate, it is the average offered rate for a conforming 30-year fixed-rate mortgage as tracked by Freddie Mac that stepped below this mark; other mortgage types and terms have been available in the twos at other times. For example, the conforming 15-year FRM has already been there for a majority of 2020, and there have been over 100 weeks in the last decade where that has also been the case. As well, there have been over 200 weeks where a hybrid 5/1 ARM could have been had at an initial rate below three percent, not to mention formerly-popular other ARMs and mortgages with other terms at various points in time. Still, it’s a noteworthy achievement, even if the difference on a $200,000 loan made at the new record loan (2.98%) compared to the previous record low (3.03%, just a week prior) creates a payment difference of about $5 per month. While welcome, that five dollars doesn’t much change the homebuying or refinancing equation for consumers.It also bears remembering that while Freddie Mac’s data is a benchmark, but only for a select slice of potential borrowers — those with great credit, who can make a substantial down payment, fully document their income and assets and meet other underwriting criteria. For potential borrowers who can’t meet these requirements, those whose credit isn’t stellar, who have smaller down payment or equity stakes or can’t meet documentation standards, mortgage rates are still likely low but may or may not be at record lows.It’s also worth noting that while the interest rate gets all the headline play, one can’t ignore the presence of fees paid to obtain the rate. In Freddie’s case, this week’s record low rate was available by paying 0.70 points — a fee of $700 for each $100,000 of the loan being borrowed. Often, these fees are incorporated into the interest rate rather than paid outright, so a rate at no points (sometimes called a “par” rate) would be closer to 3.25% than not. With this in mind, it has been pretty easy in recent weeks to get an interest rate in the twos simply pay paying a whole point (1% of the loan amount) or more. The economy is in terrible straits, and only partially emerging from its worst downturn since the Great Depression (and probably the only recession-by-design in history). Millions are unemployed or underemployed, assisted only by extraordinary fiscal supports that aren’t a long-term solution. The Federal Reserve (and other central banks) are keeping monetary policies at emergency levels and employing novel programs and approaches to stave off even worse outcomes and inflation remains little but a future threat. Meanwhile, the ongoing battle with COVID-19 continues, and the current outbreak across the southern and western U.S. threatens to undue some (or perhaps more) of the economic progress made after widespread shutdowns. Although we may have become somewhat more accustomed to them, risks of financial loss or even ruin for some and risks of life and health for others haven’t gone away, and may even be again intensifying somewhat. Perhaps we’re less afraid than in the early stages of the outbreak — to be sure, we know more now than we did then — and each day may be bringing us closer to effective treatments and even a vaccine, so there is always hope. However, between now and whenever then comes there are likely to be a number of difficult periods to navigate. The Fed’s own survey of regional economic conditions (called the “Beige Book” for the color of its cover) detailed the situation most succinctly. In the weeks leading up to the July 6 report date “Economic activity increased in almost all [Fed] Districts, but remained well below where it was prior to the COVID-19 pandemic” and business contacts noted that “Outlooks remained highly uncertain.”With mortgage rates low, inventories of existing homes for sale razor thin and amid still-considerable demand, the nation’s homebuilders are pretty happy at the moment. The National Association of Homebuilders Housing Market Index rose by a stout 14 points in July, returning to a robust level of 72 and completing a rebound to levels seen before the pandemic shutdown kicked in. Subcomponents covering sales of single family homes popped back, too, gaining 16 points to leap to 79, the same value as seen in March. Expectations for sales in the next six months followed suit, rising 7 points to match March’s level of 75, and traffic at showrooms and model homes leapt 15 points to 58, the best since January. For homebuilders, it would seem that the recession and recovery has taken the form of a “V” (for the moment, at least), provided demand does not falter in the coming months.Certainly, if demand is fully back there is plenty of building that will need to be done. Housing Starts kicked 17.3% higher in June compared to May, with the 1.186 million (annualized) units started a bit strong than was expected. Still, even with the rebound over the last two months, construction activity remains well below winter levels, when warm weather goosed construction up to a 1.61 million level. For the latest month, single-family home construction rose by 17.2% to 831,000 annualized units underway, while starts for multifamily projects gained by 17.5% to 407,000 for the month. Permits for future construction also managed an increase, but the 2.1% month-over-month gain to 1.241 million annual is still a few hundred thousand units shy of where they began the year.
Given the chance to spend, consumers continued to open their wallets and pocketbooks in June. Retail sales for the month rose by 7.5%, a strong follow up to a record May surge of 18.2%, a figure revised up from the initial estimate. Unlike May, the increase wasn’t quite across-the-board in all categories; building materials, food and beverage and non-store retailers all saw a touch of softness (softer non-store sales are to be expected, as brick-and-mortar stores probably siphoned off some sales from online outlets as shoppers got out and about again). Digging deeper, so-called “core” retail sales (no cars, no gas station sales) were solid with a gain of 6.7%. While the continued rebound in retail sales is impressive and welcome, the reality is that sales are only 1.1% above year-ago levels, a fairly soft pace, and only about 25% of what was in place pre-pandemic.Manufacturing continues to try to get back up to speed, and in two Fed districts activity was pretty good in July. The Federal Reserve Banks of New York and Philadelphia both released their localized reports this week; New York’s gauge rose by 17.4 points to a positive 17.2 for the month, a value good enough to be the highest since back in 2018. Orders moved 14.5 points higher, rising to a positive 13.9 for the month, and after four declines, the employment measure climbed over the zero mark to 0.4, so at least some meager job growth happened. Just down the New Jersey Turnpike, the Philly Fed’s similar barometer remained solid, if perhaps a little less so, as a 3.4-point decline in the top-line index left it at 24.1 for July. While inventory levels damped the headline figure, measures of new orders rose 6.3 points to 23, and employment solidified with a 24.4 point surge to a positive 20.1, the highest level since October 2019. Industrial production improved in June, climbing 5.4%. Consistent with the above and other reviews, manufacturing production rose a strong 7.2% for the month, and the upward momentum was improved by a 4.2% increase in utility output. Mining output remained a drag for a fifth consecutive month, as demand is still pretty slack and oil prices remain at levels that make profitable extracting a challenge. The overall increase in production did lift the percentage of industrial floors in active use to 68.6% and there remains considerable spare capacity as historic norms are closer to 80% total utilization. We’ll not see production-led bottlenecks that can contribute to inflation anytime soon. Although price pressures remain subdued, they aren’t non-existent. Prices of imported goods rose by 1.4% in June, up from a 0.8% rise in May and rather above forecasted levels. However, it will take a number of strong readings just to get us back to a zero level of import price inflation, as prices this year are still some 3.8% below where they were in the same month in 2019. Petroleum price increases accounted for much of the overall rise in import costs, as oil continued its firming trend during the month. Also firming again of late are export prices; like imports, these also rose 1.4% in June, a second monthly gain after a three-month string of declines in the Feb-Apr period. That said, we’re not exporting any inflation, either, as export costs are still 4.4% below year-ago levels. Consumer prices are edging higher, too. The Consumer Price Index had been steady to increasing in the months leading up to the pandemic shutdown, stumbled for three months, and has now resumed an upward path. The 0.6% increase in headline CPI was pushed again by firm food prices, and this time that lift was joined by energy costs, too. It’s not as though there was no price pressure to be seen when those were excluded from the tally, either, as the so-called “core” CPI increased by 0.2%, back to the same levels seen before COVID-19 distorted them. Overall CPI remains very low with just a 0.7% year-over-year increase (but also moving back upward) and core CPI remained flat a 1.2% for a second month. We’ll see if prices can stay a bit firmer, which would likely please the Fed as they are hoping to avoid a de- or disinflationary environment with short-term rates already pegged at about zero. In looking at the weekly series for initial unemployment claims, labor market improvement appears to have stalled. In the week ending July 11, another 1.3 million applications for help were filed around the country, a decline of just 10,000 from the holiday week of July 4. The steady level is in indication that businesses are still shedding workers at an unhealthy pace, but at least the ranks of those receiving benefits are slowly diminishing, so at least some folks are being reabsorbed into the workforce. Continuing claims slid by 500,000 in the latest week, but 17.3 million people getting assistance — the lowest of the downturn so far — isn’t much to get excited about when you consider it is a figure about 10 times that seen as the calendar turned to March. 

With plenty of troubles to ponder, consumer moods have darkened a bit of late. The University of Michigan survey of Consumer Sentiment declined by 4.9 points in the preliminary July reading and is barely above pandemic recession lows. Both present conditions (-2.9 points to 84.2) and expected (-6.1 points to 66.2) declined, The surging coronavirus was the primary concern cited in the commentary provided, with rising concerns about the economic impacts from the increased outbreak over the last few weeks. There may be a lot of difficult issues with which to contend, both happening currently and expected to come, but at least we have low mortgage rates, which are a blessing (for some) as a result of a curse (for all). In the week of July 10, applications for mortgages flared higher by 5.1%; applications for purchase-money mortgages slid by 6.1% for the week, but refis more than made up for that decline, powering 11.9% higher for the period. With headlines of never-before-seen rates everywhere in recent days, refi activity will likely be set to climb again, much to the delight and chagrin of lenders who welcome the business even as they are struggling again to keep up with demand. Lower rates can’t much help the purchase market, though, as they simply serve to incite more demand into a market of limited supply. Simply said, low rates are great, but won’t put more homes on the market, and may serve to lift prices further for those that are.Next week comes a light calendar of data, but we’ll see if falling mortgage rates in May, June and July have improved existing and new home sales. Since both were beaten down pretty well, existing home sales will likely pop a great deal higher, while new home sales will build on June’s rebound. As far as mortgage rates go, we’re shaping up to see another record low next week, as the average offered rate for a conforming 30-year FRM as reported by Freddie Mac will likely drift down another 3 basis points or so.

Is It Already Time To Refinance Again? Jul 17 2020 BY: MATTHEW GRAHAM

Markets continue to focus on coronavirus numbers first and foremost.  When the news is good, we tend to see stocks and rates move higher.  When the news is bad, rates tend to fall and stocks struggle to improve. 

The movement is usually more pronounced for stocks.  When it comes to rates, however–especially mortgage rates–recent volatility is taking place at a microscopic level compared to recent months.  This could continue to be the case until we get a much clearer sense of how the pandemic will likely evolve in the context of our attempts to reopen the domestic economy.

Until that happens, of all the places to be flying in a relative holding pattern, this is as good as it gets for mortgage rates.  When coronavirus first hit the bond market, it was US Treasuries that responded most convincingly.  Mortgage rates weren’t able to keep pace and that turns out to have been a good thing in hindsight.

No… really… this isn’t just a term that’s being thrown around interchangeably with “really low rates.”  The average lender is now able to offer conventional 30yr fixed rates in the high 2% range for the best scenarios.  

That means some homeowners are in a position to benefit from a refinance even if they already refinanced in the past year. 

But isn’t it a lot of work to refi again?

While some scenarios are more complicated than others, on average, loan applications are seeing an unprecedented amount of appraisal waivers.  The industry has worked quickly to adapt to new realities and in many cases, that has made things easier for borrowers.

But aren’t there a lot of costs that I’ll have to pay that I just paid the last time I refinanced?

Not necessarily.  There are different kinds of closing costs.  In general, you can ignore “stuff you would have paid anyway” like taxes, insurance, and prepaid interest.  You won’t get hit for those twice.

There’s a good chance the lender can pay for a most or all of the other fees like title, escrow, origination, appraisal, etc.  Either way, borrowers should consider how long it will take to break even on the refinance by dividing those new hard costs (if any) by the monthly payment savings. 

But what if haven’t refinanced recently and don’t have as many years left on this mortgage.

You’ll need to do some math here, but generally speaking, if you continue making the same payment but with a new lower interest rate, you might find your home will be paid off sooner with the new loan.  

The bottom line:

The current low rate environment is like nothing we’ve ever seen before.  It’s easy to tune out the constant advertisements and news stories about “all-time low rates,” but this time around, the refinance process is very much worth investigating right now.

Housing-related economic reports from the past week:

30-Year Mortgage Rate Reaches Lowest Level Ever: 2.98%

Coronavirus has upended markets around the world. Its effect on the 30-year mortgage is especially significant. 

Low mortgage rates typically boost home sales, but they did little to ease the pandemic’s impact on the housing market this spring. PHOTO: NICK SCHNELLE FOR THE WALL STREET JOURNAL

By Orla McCaffreyJuly 16, 2020 10:05 am ET

In a year of financial firsts, this one stands out: Mortgage rates have fallen below the 3% mark.

The average rate on a 30-year fixed mortgage fell to 2.98%, mortgage-finance giant Freddie Mac FMCC -0.93% said Thursday, its lowest level in almost 50 years of record keeping. It is the third consecutive week and the seventh time this year that rates on America’s most popular home loan have hit a fresh low.

The coronavirus pandemic has upended markets around the world—sending stocks on a wild ride and yields on U.S. government debt to record lows—but its effect on the 30-year mortgage is especially significant. Consider its history: In the early 1980s, it peaked above 18% after the Federal Reserve raised rates to fight runaway inflation.

Below 3% is a “tremendous benchmark,” said Jeff Tucker, an economist at Zillow Group Inc. “It’s also an indication that we remain in a crisis here.”

Mortgage rates tend to move in the same direction as the yield on the 10-year Treasury note. Yields fall as prices rise when nervous investors buy up safe-haven assets like bonds when the economic forecast is darkening.

The spread between the yield on the 10-year Treasury and rate on the 30-year mortgage has narrowed in recent weeks, largely because lenders had spare capacity to process applications after clearing a backlog of refinacings. Still, the larger-than-usual gap means there is room for rates to fall even farther, Mr. Tucker said.

Not all mortgage rates have declined at the same pace. Interest rates on jumbo home loans, those too large to sell to Freddie Mac or Fannie MaeFNMA -0.71% have fallen to around 3.77% from 3.84% at the beginning of the year. Earlier this year, some lenders placed new restrictions on these larger loans—in most markets, loans of more than $510,400—after the investors who typically buy them soured on loans without government backing.

Low mortgage rates typically boost home sales, but they did little to ease the pandemic’s impact on the housing market this spring. Existing-home sales fell 9.7% in May from the month prior and 17.8% in April, according to the National Association of Realtors.

A number of hurdles are keeping people from purchasing homes. A home purchase is out of the question for many of the millions of Americans who’ve lost their jobs in recent months. And fears that recurrent coronavirus outbreaks will lead to a protracted downturn could also keep some with the means to buy from committing to big purchases.Change in mortgage applications, weeklySource: Mortgage Bankers Association

For those who are looking to buy, inventory is tight and prices are high. The number of homes on the market fell 27.4% in June from a year earlier, according to Home prices rose 4.7% year-over-year in April, potentially muting any savings from low rates.

Still, there are indications that some of the buyers who stayed home during the spring are venturing into the market. Mortgage purchase applications rose about 17% in June from a year earlier, according to data from the Mortgage Bankers Association. Economists at Fannie Mae expect sales to peak in July or August as the backlog of delayed spring deals is cleared.

Falling rates often prompt home buyers to speed up their purchasing plans. That was the case for Phillip Caldwell and his wife, Tracey, when they locked down a rate of 3% in late May, much lower than they expected.

The first-time home buyers decided to move from Seattle to Mr. Caldwell’s hometown of St. Louis, putting down an offer on a house in the Creve Coeur neighborhood in late spring. Shortly after, Mr. Caldwell set out for the 30-hour trip from Seattle to St. Louis with his husky, Rolland.

“A big factor that played in was that mortgage rates were going down,” Mr. Caldwell said. “We thought it might behoove us to get it done now.”

Tressie McMillan Cottom was thrilled when she was approved for a rate of 3.05%. “It meant I could look at a higher price point and more homes became available,” she said.

The college professor needed to find a house in the Chapel Hill, N.C., area and she knew competition would be fierce. Her Richmond, Va., house sold in hours when she listed it in early July.

“On my second trip to Chapel Hill, I just came with my checkbook and told my agent ‘We’re picking one of these,’” she said.

Treasuries Rally Reflects Visions of a Rockier Path to Recovery

By Emily BarrettJuly 11, 2020

  •  Benchmark yields touch new lows as covid-19 infections climb
  •  Inflation data unlikely to lift morale as growth worries mount
Treatment of a patient in the Covid-19 ICU at the United Memorial Medical Center in Houston, Texas, on June 29.
Treatment of a patient in the Covid-19 ICU at the United Memorial Medical Center in Houston, Texas, on June 29. Photographer: Go Nakamura/Bloomberg

The grim tallies of new coronavirus cases have given investors a glimpse of a bleaker world in the second half of the year, and a reminder of the haven appeal of government bonds.

Investors rushed into the safest assets as news on the pandemic worsened during the past week. The fiercest moves have dissipated, but not before long-dated yields in the U.S. had touched multi-month lows, crushing the curve flatter. The five-year rate fell to a new record below 0.26%, as did both the two- and five-year maturities in the U.K.

Treasuries have remained well bid in recent weeks even as stocks have climbed. Bond investors have kept their focus on the path of the pandemic, with fatalities climbing to new highs in Florida, Texas and California, and countries including Italy and Australia reinstating travel restrictions. That defensive bias was most evident Thursday, when investors piled into the Treasury’s 30-year auction, seizing an opportunity to add duration.

“The market is finally reacting to the growing infections,” said Priya Misra, head of global rates strategy at TD Securities. “That’s why rates are falling, led by the long end,” she said. “It’s the only hedge if risk assets are vulnerable.”

Yield on 30-year bonds falls amid demand for havens

U.S. stocks extended their gains heading into a week of earnings reports from banks — which should at least show healthy trading revenues — on optimism about the prospects for an effective treatment for Covid-19 patients. But until the market has more clarity on these points, the latest setbacks in the economic reopening and blow to confidence may overshadow any better-than-expected data.

The 10-year Treasury yield on Friday fell as low as 0.57%, a level unseen since late April, before rebounding to end the week around 0.64%. The 30-year rate, meanwhile, plunged as low as 1.24% at one point, close to 20 basis points below where it began the week. The yield curve between 5- and 30-year securities dipped below 100 basis points before rebounding slightly, though it’s still close its flattest level since May.

Next week’s U.S. economic calendar is heavy with inflation data, which are unlikely to do much to inspire morale. The data are predicted to show consumer prices rose 0.5% in the month of June and while that’s a sizeable jump, it’s coming from the bottom of a pretty deep hole.

“There’s not an economist in the Fed or Street that thinks that this is an inflationary event,” said Subadra Rajappa, head of U.S. rates strategy at Societe Generale.

She says the recent rise in market expectations for inflation, reflected in breakeven rates, is premature and understating the continued challenges to the recovery. She sees a risk of a reversal if Tuesday’s consumer prices number is lower than forecast. That’s a worrying prospect for investors who’ve piled into inflation-linked markets on the basis of a stronger-than-expected recovery, and chasing last quarter’s record-beating outperformance.

“Any time you see inflows into TIPS like this, it tends to be mostly from speculators,” Rajappa said. “If one leaves the rest will panic and follow.”

What to Watch

  • Earnings for the biggest U.S. banks are likely to be a key focus for market news in the coming week, with JPMorgan Chase & Co. and Bank of America Corp. among those providing updates
  • The economic calendar:
    • July 13: Monthly budget statement
    • July 14: NFIB small business optimism; consumer price indexes; real average earnings
    • July 15: MBA mortgage applications; import and export price indexes; Empire manufacturing gauge; capacity utilization; industrial production; Fed Beige Book
    • July 16: Retail sales; Philadelphia Fed business outlook; weekly jobless claims; Bloomberg consumer comfort index; business inventories; NAHB housing market index; Treasury International Capital flows
    • July 17: Building permits; housing starts; University of Michigan sentiment report
  • The Fed calendar:
    • July 13: The New York Fed’s John Williams discusses Libor at an event jointly hosted by the Bank of England; Dallas Fed’s Robert Kaplan speaks at a separate event
    • July 14: Governor Lael Brainard and the St. Louis Fed’s James Bullard speak about the economy
    • July 15: Philadelphia Fed’s Patrick Harker on economic outlook; New York Fed’s Lorie Logan addresses SIFMA event
    • July 16: Chicago Fed’s Charles Evans; Williams
  • The Treasury auction calendar includes:
    • July 13: 13-, 26-week bills
    • July 14: 52-week bills
    • July 16: 4-, 8-week bills

‘Tsunami’ of Evictions Could Make 28 Million Americans Homeless This Summer Alone

NEWS   |  JUL 10, 2020 AT 10:43 PM. 

“We’re looking at 20 million to 28 million people in this moment, between now and September, facing eviction.” 


With the pandemic continuing to sink its claws into the United States, economic conditions have also failed to improve for millions of people. As a result, nearly one-third U.S. households – representing 32 percent – have still not made their full housing payments for the month of July, according to a survey from online rental platform Apartment List.

And with public health experts warning people to continue to “Stay at Home,”the slogan is taking on a perverse new meaning as humanitarian disaster looms for some 28 million people in the U.S. who are facing eviction and homelessness in the immediate future.

About 19 percent of those surveyed were unable to make any housing payment in the first week of the month, while 13 percent paid a portion of their rent or mortgage.

The numbers represent the grim fact that for four months now, a “historically high” amount of U.S. households have been unable to pay their housing bill, either on time or in full. It also represents an increase from 30 percent in June and 31 percent in June.

According to Apartment List, those most likely to miss their payments were younger, low-income, or renters. Other experts warn that Black and Latino families face the highest risk of eviction. They also may be entering the start of a rapid and vicious cycle, the report suggests.

“Delayed payments in one month are a strong predictor for missed payments in the next,” Apartment List says. Indeed, 83 percent of households who paid the entirety of their May housing costs in a timely way did the same in June, but only 30 percent of households who were late in May did so in June.

As the economic crisis continues to spiral unabated, tens of millions of Americans continue to survive on unemployment while their economic stimulus checks have long been gone.

“The economic fallout from the pandemic does not appear on track for the quick V-shaped recovery that many had originally hoped for,” Apartment Listnotes.

And with unemployment benefits expiring while eviction bans and moratoriums that deferred rent payments are being lifted by local governments, experts and advocates are warning that we could see a tsunami of mass evictions across the country that exceeds anything ever seen.

Emily Benfer is the chair of the American Bar Association’s Task Force Committee on Eviction and co-creator of the COVID-19 Housing Policy Scorecard with the Eviction Lab at Princeton University. In an interview with CNBCBenfer explained that the current public health crisis will soon see tens of millions of people losing their homes in the coming weeks.

“We have never seen this extent of eviction in such a truncated amount of time in our history,” she said. “We can expect this to increase dramatically in the coming weeks and months, especially as the limited support and intervention measures that are in place start to expire.”

“About 10 million people, over a period of years, were displaced from their homes following the foreclosure crisis in 2008,” she added.

“We’re looking at 20 million to 28 million people in this moment, between now and September, facing eviction.”

Legal aid groups and housing advocates are expecting an avalanche of cases as eviction moratoriums and rent deferral moratoriums have ended in quick succession. And across the country, there has been a 200 percent jump in calls to 211 call centers that refer people to social service providers, reports Yahoo! finance.

And as the moratoriums are lifted, county courts are facing hundreds, if not thousands of eviction cases flooding in – in Memphis, local county courts saw a backlog of 9,000 eviction cases when hearings resumed last month.

“In many ways, the wave has already begun. We need to work to stop it from becoming a tsunami and we’re running out of time,” said Diane Yentel, president of the National Low-Income Housing Coalition. “We’re seeing now a really frankly horrifying confluence of increasing evictions in states where new coronavirus cases are surging.” 

According to the COVID-19 Eviction Defense Project (CEDP), one in five of the 110 million Americans who rent their homes – over 20 million people – are at risk of eviction by the end of September. And these aren’t simply low-income families, but people who fell on rough times recently due to the shock of the pandemic, explains CEDP Co-Founder Zach Neumann – and the number is expected to dramatically jump when unemployment benefits run out at the end of the month.

“You have a lot of folks who had strong incomes, in a lot of cases high five-figure or low six-figure [salaries],” Neumann explained. “They didn’t have a lot of savings, lost their jobs or were furloughed, and there was not any severance attached to that, but had rents that were in line with the salaries they were earning. The client pool economically looks a lot different than it has in the past.”

In the meantime, the threat of homelessness has coincided with a dramatic spike in coronavirus infections across the U.S. South and the West, hitting struggling tenants disproportionately. And with states like Texas pausing reopening plans, evictions hearings are still proceeding – but on Zoom. As a result, tenants who lack access to technology are often robbed of their ability to flex their legal rights.

Housing advocates are urgently calling for nationwide protections in the form of a uniform eviction moratorium and federal aid through the Health and Economic Recovery Omnibus Emergency Solutions or HEROES Act and the Emergency Housing Protections and Relief Act of 2020. However, the Republican-controlled Senate is expected to block both measures.

Renters across the country are also forming tenant’s unions and demanding that rent be deferred indefinitely. Some tenants, such as the Acacia Apartments residents in Denver, Colorado, are already waging a rent strike – potentially showing the how people across the country who are struggling to keep a roof over their heads plan to keep fighting even in the face of their landlords’ eviction threats.

Want a jumbo refi from Wells Fargo? Hope you’ve got a million bucks

HomeNewsby Ryan Smith10 Jul 2020

Most Read

Wells Fargo is quadrupling its balance requirement for customers applying for jumbo refis.

The lending giant is now requiring new customers to bring at least $1 million in balances if they want to refinance a jumbo mortgage, according to a CNBC report. That’s up from their previous balance requirement of $250,000.

The policy change was part of a July 1 overhaul of lending guidelines that lowered the threshold for jumbo refinances for existing Wells Fargo customers, while making it much more difficult for new customers to qualify, sources with knowledge of the matter told CNBC.

While many lenders have tightened mortgage credit in response to the COVID-19 pandemic, that tightening has been especially pronounced at Wells Fargo, which is also operating under an asset capimposed by the Federal Reserve in response to its numerous scandals. In May, the bank hit pause on accepting HELOC applications. The month before that, Wells Fargo restricted its jumbo mortgage program, announcing that it would only refinance jumbo loans for customers who had $250,000 in liquid assets in the bank.

However, the move caused plenty of dissension within the ranks, according to CNBC. Demand for refis is 111% higher than it was a year ago at this time, according to the Mortgage Bankers Association – and Wells Fargo mortgage personnel complained that they had to turn away good customers who sought to take advantage of historically low rates.

In response, Wells Fargo last week issued an “expansion of guidelines” that nixed the $$250,000 requirement for existing customers, according to CNBC. Under the expansion, customers with a Wells Fargo bank or brokerage account of any level, or those who already had a mortgage with Wells Fargo, were able to access jumbo refinances.

“The changes we implemented on July 1 substantially increased the number of borrowers from which we’ll accept applications for non-conforming refinances,” Tom Goyda, Wells Fargo spokesman, said in a statement.

But if new customers want a jumbo refinance, they’re out of luck unless they bring a million bucks to the bank, CNBC reported. The requirement can be satisfied with a combination of deposits or investment balances.

Wells Fargo also tightened mortgage lending standards across the board in the overhaul, sources told CNBC. For both primary and secondary home mortgages, the bank reduced the LTV by 5%. It also boosted its post-closing liquidity requirement for borrowers from 12 to 18 months, CNBC reported.

Forbearance requests rise while access to mortgage credit falls

Posted by Carrie B. Reyes  Jul 7, 2020 

Forbearance requests rise while access to mortgage credit falls

Nationally, 8.5% of mortgages are in forbearance at the end of June 2020, according to the Mortgage Bankers Association (MBA). Homeowners in forbearance are unable to make their mortgage payments. Their servicer agrees to temporarily forgo an exercise of their rights to pursue foreclosure while the homeowner takes steps to bring the mortgage current.

The share of mortgages in forbearance at the end of June was:

  • 6.3% for mortgages insured by Fannie Mae and Freddie Mac;
  • 11.8% for Ginnie Mae-guaranteed mortgages; and
  • 10.1% for other types of mortgages.

As lenders have begun to lose confidence in homeowners’ abilities to pay, they have started tightening lending standards, making it harder to obtain credit. As a result, the Mortgage Credit Availability Index (MCAI) continued to decline in May 2020, as reported by the MBA.

The MCAI increased fairly consistently from 2012 through the end of 2019. Since peaking, it has fallen sharply, now 32% below the November 2019 peak.

Real estate professionals, brace yourselves

After years of gradually loosening credit, mortgage lenders are needing to quickly adjust to the economic realities of the 2020 recession.

As job losses pile on and incomes are reduced, lenders are requiring greater assurances that homebuyers will be able to make payments. This includes requirements for:

  • more savings set aside in case of job loss;
  • higher credit scores; and
  • larger down payments to demonstrate more skin in the game.

At the same time, mortgage interest rates are enticingly low. Lenders are treading a balance between encouraging homebuyers to continue to originate mortgages (and fees) and ensuring they are avoiding unnecessary risks.

Real estate agents have likely already noticed a new dynamic of homebuyers interested in taking advantage of low rates and increasingly seeing their mortgage applications denied as credit tightens. Since the economy is not rebounding anytime soon, expect to see these mortgage application rejections continue for the foreseeable future, and prepare accordingly.

Home sales have already decreased rapidly, falling 39% from a year earlier in May 2020 alone. This steep cut to agent fees won’t even begin to recover until the pandemic is over and the economy slowly gets back to work — a process likely to begin around 2022 at the earliest. Then, as began in 2012 following the start of the recovery from the 2008 recession, when lenders see stability return to the jobs picture, they will gradually loosen up credit again.