• Louis Baca

September Market Update


Mortgage forbearance rates continue to slowly decline, falling to 7.2% this week. Forbearance rates for Agency loans (Fannie Mae & Freddie Mac) are down to 4.93%, and Ginne Mae loans in forbearance fell to 9.54%.

“The extremely high rate of initial claims for unemployment insurance and high level of unemployment remains a concern and are indications of the challenges many households are facing,” said Mike Fratantoni, MBA’s chief economist.

While declining rates of forbearance is a good indicator, there is wide speculation that this may be short-lived, and the market could be facing an uptick in the coming months. The number of mortgage delinquencies 90 days + late surged in July to a ten year high. Up 20% from just a month earlier.  – Black Knight THE GOVERNMENT JUST IMPLEMENTED A SUBSTANTIAL REAL ESTATE TAX  

Originally slated to hit homeowners September 1st, now delay until December 1st, all refinance loans sold to Fannie Mae or Freddie Mac will include a fee, or a tax, of 0.5%.

“In light of market and economic uncertainty resulting in higher risk and costs incurred by Fannie Mae, we are implementing a new loan-level price adjustment,” the letter from the larger of the two government-sponsored enterprises said.  

“As a result of risk management and loss forecasting precipitated by COVID-19 related economic and market uncertainty, we are introducing a new Market Condition Credit Fee,” it said.

“The actions taken by the enterprises during the pandemic to protect renters and borrowers are conservatively projected to cost the enterprises at least $6 billion and could be higher depending on the path of the economic recovery,” the FHFA said in a statement.  Those expenses are expected to at least include: ·      $4 billion in loan losses due to projected forbearance defaults ·      $1 billion in foreclosure moratorium losses ·      $1 billion in servicer compensation and other forbearance expenses “FHFA has a statutory responsibility to ensure safety and soundness at the Enterprises through prudential regulation,” the FHFA continued. “The enterprises’ congressional charters require expenses to be recovered via income, allowing the enterprises to continue helping those most in need during the pandemic.”  

Since the CARES Act was rolled out in March, the federal government has further been subsidizing the entire lending industry by making not only the mortgage payments, but also tax and insurance payments, when borrowers do not. As of today, that is 7.2% of all mortgage payments. Someone is going to pay it back, and in one sweeping move, the government decided it would be homeowners; during a global pandemic and deep recession.

“Tonight’s announcement by the GSEs flies in the face of the administration’s recent executive actions urging federal agencies to take all measures within their authorities to support struggling homeowners,” the MBA statement said.  

“Requiring Fannie Mae and Freddie Mac to charge a 0.5% fee on refinance mortgages they purchase will raise interest rates on families trying to make ends meet in these challenging times,” it said. “This means the average consumer will be paying $1,400 more than they otherwise would have paid.”

“The housing market has been able to withstand many of the most severe effects of the COVID-19 pandemic,” MBA said. “The recent refinance activity has not only helped homeowners lower their monthly payments, but it is also reducing risk to the GSEs and taxpayers. At a time when the Federal Reserve is purchasing $40 billion in agency MBS per month to help reduce financing costs for mortgage borrowers to support the broader economy, this action raises those costs and undermines the Federal Reserve’s policy.

“This announcement is bad for our nation’s homeowners and the nascent economic recovery,” the MBA statement said. “We strongly urge FHFA, which had to approve this policy, to withdraw this ill-timed, misguided directive.”

All this comes at a time when the government is working tirelessly to privatize Fannie Mae and Freddie Mac, so the government will not be on the hook to bail them out during an economic crisis. The reality is the government will always bail out Fannie and Freddie, privatized or not, to prevent a housing crash. No one likes big government until it steps in to protect your equity.

Fannie Mae was created in 1938 for all intents and purposes to socialize home lending. As one of the most profitable companies in US history, it has done an amazing job. It created a secondary mortgage market allowing homeowners easy access to home loans, and low rates.

The 30-year fixed mortgage is a product of the socialization of the mortgage industry. It did this through a government guarantee protecting investors from losses and would use the credit of the federal government to ensure a low cost of funds. In 2008, and again in 2020, the Agencies are stepping in to prevent a catastrophic economic event. This comes at a cost, which the taxpayer, will inevitably pay. 

Looking for low long-term rates with a long-term amortization period, and protection of a housing collapse during catastrophic economic events (i.e. pandemic, global recession, etc)? We have it. It is called Fannie Mae and Freddie Mac.


As Maya Angelou so aptly said, “When someone shows you who they are, believe them the first time.”

 Since the onset of the coronavirus that has plagued this nation, we have watched policymakers and their varied responses at both the state and federal level. When it comes to housing and mortgage finance perhaps the most shocking thing is how the FHFA and the GSEs have simply ignored their role and used this time to threaten nonbank mortgage servicers facing liquidity problems, adding outrageous fees to borrowers faced with job loss as they utilized the legislated forbearance option, and this week adding a 50bp fee on refinances.

To be clear, the GSEs, and their regulator the FHFA, have done little to support the extraordinary efforts that have been done by the Federal Reserve and Congress to date. All of that loan volume that each and every lender is doing is the result of the Fed’s actions, with the GSEs simply being the passive receiver of billions of dollars in new G-Fee revenue.

The profits posted by both GSEs in their recent earnings are only because the of the quantitative easing from the Federal Reserve. Powell is the hero here, and Calabria and the GSEs are simply cleaning up on their actions. 

To be clear: don’t listen to their claims that they need to build their coffers for future losses from delinquencies and potential foreclosures. These two companies have stripped unexpected billions of dollars from COVID directly into their profits due to the fed created “short,” the result of these massive MBS purchases. Don’t let them get away with that excuse when every other federal and state agency is bleeding billions of dollars to support consumers, support businesses, and stabilize the market.

 It’s time for all to recognize what is happening here. Director Calabria has one goal and that is to fully privatize the mortgage market and leave the GSEs as nothing more than a counter-cyclical last choice for the housing market. Calabria has written, spoken, and testified for years on his view that the mortgage market should be fully privatized. 

In this testimony given before congress in March of 2011 Calabria stated this: “Reducing the competitive advantage of Fannie Mae and Freddie Mac via a mandated increase in their guarantee fees would both help to raise revenues while also helping to “level the playing field” in the mortgage market. Given that the federal taxpayer is covering their losses and backing their debt, along with the suspension of their capital requirements, no private entity can compete with Fannie Mae and Freddie Mac. We will never be able to move to a more private market approach without reducing, if not outright removing, these taxpayer-funded advantages.

 Since the onset of COVID-19, and despite heroic efforts by the Fed and Congress with the most extraordinary intervention, the FHFA has simply shown the proverbial middle finger to the housing finance system, to consumers, and especially to nonbank lenders who have been critical to credit availability in creating home ownership.  Calabria has taken multiple steps in his singular effort to change the GSE model amidst this pandemic.

 After the CARES Act was passed in March and implemented that first week of April, FHFA refused to do its duty in support of the act and withheld any liquidity support for mortgage servicers, a direct attack particularly on the massive nonbank servicing market. This immediately resulted in a pullback in servicing values and servicing buyers, directly raising rates beyond where they might otherwise be. FICO and LTV overlays as well were put in place to reduce risk and thus constrained credit availability.

When it became clear that some borrowers might face job loss shortly after closing on their mortgage, Calabria made clear that the GSEs would not help consumers facing harm’s way and put a policy in place making cash out refinances ineligible for sale and all others facing hundreds of basis points in delivery fees if they entered forbearance after settlement but before sale. Immediately we saw a pullback in refinance policy especially cash outs.  

Then this week, Calabria and the GSEs have rolled out an across-the-board 50 bp delivery fee on all refinances. This is a direct hit to consumers and will end up as extremely large costs to the pipelines of loans in process that already have their rates locked in. As MBA’s Bob Broeksmit told the Wall Street Journal: “For the GSEs to add a 50 basis-point surcharge on refinances when the nation is struggling with the greatest economic downturn since the Great Depression is outrageous.”  

All of this comes while Calabria has proposed a capital rule that would raise pricing across the board, consistent with his manifesto for leaving a crippled GSE model as they are “released” from conservatorship. He has raised multiple biased attacks against nonbanks despite the fact that non-banks have never been the source of federal intervention during financial meltdowns.

 In fact, Calabria has always worked to curtail the non bank market stating in that same 2011 testimony, “Moving more of the mortgage sector to banks and thrifts would also insure that there is at least some capital behind our mortgage market.“  

It’s time to take the gloves off. The FHFA is not a friend to the housing community and failure to be vocal will be perhaps the greatest mistake industry leaders can make. This isn’t about protecting taxpayers, this is about increasing the cost and availability of mortgages for hard working Americans in the middle of a global pandemic.  That’s shameful.  – David Stevens  

Note: Mark Calabria, former chief economist for Vice President Mike Pence, was appointed the Director of FHFA by the Trump Administration. He has been an outspoken critic of the GSEs and was opposed to their conservatorship in 2008. BIDEN PROPOSED HOMEBUYER TAX CREDIT

Joe Biden has proposed a $15,000 tax credit for first time homebuyers to assist with the purchase of a home if elected President.

“Help families buy their first homes and build wealth by creating a new refundable, advanceable tax credit of up to $15,000. Biden’s new First Down Payment Tax Credit will help families offset the costs of home buying and help millions of families lay down roots for the first time.”  

The proposal shares many similarities to the $7,500 tax credit by President George W Bush, and the $8,000 tax credit by President Barack Obama. –  

One noticeable difference, this tax credit would be applicable at the time of purchase, verses redeemed with their filed tax returns. COMBATING THE PANDEMIC – KEEP PRINTING MONEY

The Treasury Department announced their plan to borrower an additional $2 Trillion in the second half of 2020.

The department estimated the government would borrow $947 billion from July through September, a record for the quarter, bringing total borrowing for fiscal year 2020 to $4.5 trillion, in line with earlier estimates. That total is more than triple last year’s $1.28 trillion, and it dwarfs borrowing during and after the 2008 financial crisis. – Wall Street Journal “We have to be careful about not piling on enormous amounts of debt for future generations,” Treasury Secretary Steven Mnuchin said Sunday.

U.S NATIONAL DEBT $26.68 Trillion and climbing. QUANTITATIVE EASING 2020 Since the start of the global pandemic, the Federal Reserve has purchase nearly $900 billion in mortgage backed securities (MBS) to drive down long-term mortgage rates. They have committed to purchasing $40 million a month in MBSs for as long as needed. CA RESIDENTS FLEEING STATE?

Like many, you may be under the belief that people are fleeing the state of California by the mass’s due politics and taxes. But the price of real estate runs counter to that perception and/or reality.  

In one of the highest cost areas in the country, the average listing price in San Francisco is $1.68 MM, with the average purchase price is even higher, at $1.72 MM. Inventory is at 1.8 months, and prices are soaring. “When you step back and look at the bigger picture, it seems that those writing off urban real estate have done so prematurely,” said Zillow Economist Jeff Tucker in a statement.  

If there was a mass exodus, there would be a glut of properties, and home prices would be falling. Economics 101. For those that have been to California and can afford it, despite the politics, it appears that there is still high demand for properties in one of the most spectacular lands in the country. RATE WATCH - FLAT 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

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