October Market Update
MORTGAGE LENDING TO SET RECORDS IN 2020
In a recent report, Fannie Mae anticipated that the mortgage industry would post an all-time lending record of $3.9 trillion in 2020. The highest level of fundings since 2003; driven by historically low long-term interest rates. Record low interest rates are also fueling an already hot housing market causing a surge in purchase actively and forcing values higher due to high demand and low inventory.
According to a recent report from Black Knight, there are more than 19 million homeowners, or 43% of all mortgage borrowers, that could benefit from a refinance today. If all 19.3 million candidates were to refinance, the average savings would amount to $299 a month, an aggregate of $5.3 billion, the data firm’s researchers found. More than 7 million could save at least $300 a month, while 2.5 million could save $500 a month or more, Black Knight said. – housingwire.com
No signs that the volume that is overwhelming the industry is going to slow any time soon. Interest rates fell off a cliff because of a recession compounded by a global pandemic. The mortgage industry tends to do well when the economy suffers. While the Fed has stated short term interest rates would likely stay low into 2023, long term rates may trend up in the near future based on certain economic and political variables. A President elect that is perceived to benefit the economy could cause long term rates to rise, as they did in 2016; when rates spike 0.5% in about 48 hours. Many economists believe that just knowing who the President is will ease uncertainty in the markets and drive long term interest rates higher post-election. A roll out of a viable COVID-19 vaccine will likely also send mortgage rates higher.
Look for interest rate volatility going into, and out of the November Presidential election; potentially through the end of 2020.
FORECLOSURE CRISIS ON THE HORIZON
Corelogic reports that the US could be headed towards a foreclosure crisis. The share of loans with payments 90 days to 119 days late quadrupled between May and June, rising to 2.3%, the highest level in more than 21 years, said Frank Nothaft, CoreLogic’s chief economist.
Measuring all loans 90 days or more overdue, including loans already in foreclosure – a gauge known as the serious delinquency rate – the share was the highest since 2015, the report said.
“If there are new government programs, maybe that alleviates some of the risks, but given what we know today, we could be looking at a serious delinquency rate that is four times higher at the end of 2021 as it was before the start of the pandemic,” Nothaft said in an interview.
A rate that high could result in a foreclosure crisis, the report said. “Not only could millions of families potentially lose their home, through a short sale or foreclosure, but this also could create downward pressure on home prices – and consequently home equity – as distressed sales are pushed back into the for-sale market,” the report said.
“Sustained unemployment has pushed many homeowners further down the delinquency funnel,” the report said. “With unemployment projected to remain elevated through the remainder of 2020, we may see further impact on late-stage delinquencies and, eventually, foreclosure.” -housingwire.com According to the Mortgage Bankers Association, 3.6 million homeowners are in forbearance today, and with a divisive election right around the corner, homeowners are getting caught in the crossfire. Both parties working tirelessly for political traction, while the country suffers waiting for rational effective policy.
The House recently passed the Heroes Act in May to extend support to homeowners beyond the CARES Act. The Senate failed to address the Act prior to their vacation. Mitch McConnell introduced a substantially toned-down version of the Heroes Act, which Democrats squashed out the gates. MORATORIUM EXTENDED
The Federal Housing Finance Agency (FHFA) has extended the moratorium on foreclosures and evictions for borrowers with mortgages backed by Fannie Mae and Freddie Mac. The original expiration date was August 31st, now extended to December 31st.
“With this latest extension of the foreclosure and eviction moratorium, we can continue to help ensure distressed borrowers are able to remain in their homes during this national emergency,” said Malloy Evans, senior vice president, and single-family chief credit officer at Fannie Mae.
The extension brings additional relief to homeowners and renters that have been negatively impacted by COVID-19, but continues to add to the financial strain for the federal government who is on the hook for mortgage payments to investors and tax payments to local governments. HOUSING TAX TO RISE UNDER CURRENT STRATEGY
For the GSEs (Fannie Mae & Freddie Mac) to exit conservatorship, they will need to meet the capital rule that Wall Street must also abide by.
“Higher capital requirements would require the enterprises to have more equity capital, and as equity capital increases, the enterprises must earn more to maintain the same return on equity,” Fannie Mae said in a comment letter on Friday. “For Fannie Mae’s business model, the most viable source of higher earnings would be increased to guaranty fees.”
“Higher capital costs would be borne in part by investors in the form of higher guarantee fees and lower return on UMBS,” Freddie Mac said in a separate letter. “Ultimately, homebuyers would face higher borrowing rates from a flow-through of higher guaranty and resecuritization fees.”
Guaranty fees, or G-Fees, is a tax on conforming mortgages backed by Fannie and Freddie. Someone has got to pay, and the government decided it will be the homeowner. HOME SALES SOAR
The COVID-19 pandemic crushed the economy, an many working-class citizens, except it appears for those that can afford housing. In August, home sales in the US skyrocketed to a 14-year high, according to the National Association of Realtors. Counter to what happens to home prices in most recessions, home prices are also soaring, climbing 3.9% in July. Phoenix lead all cities up 9.2% year over year.
U.S. NATIONAL DEBT
$26.81 Trillion and climbing. The Congressional Budget Office reports that US Debt will exceed the total US GDP by the end of 2020. The CBO predicts the largest deficit as a percentage of GDP since 1945. Prior to the pandemic, the deficit was inflated due to the 2017 corporate tax cuts.
GENEVA FINANCIAL, LLC NOW LICENSED IN 43 STATES
Alabama, Arkansas, Arizona, California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, Washington, Washington D.C. & Wisconsin