The 2 Trillion Stimulus Will Devastate The Mortgage Markets

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BREAKING NEWS: The 2 Trillion Stimulus Will Devastate The Mortgage Markets And Affect Lending

The 2 Trillion Stimulus Will Devastate The Mortgage Markets
Gustan Cho Associates

The 2 Trillion Stimulus Will Devastate The Mortgage Markets And Affect Lending.

  • Mortgage lenders nationwide have seen the impact already from the coronavirus pandemic
  • Congress passed the 2 trillion stimulus package today to help individuals, families, and businesses
  • Included in the bill are unemployed homeowners to be able to qualify for a mortgage forbearance during the time they are unemployed and/or laid-off during the coronavirus pandemic
  • The unemployment number claims release on Thursday came at a staggering 3.4 million which is by far the largest numbers for the week in US history
  • The coronavirus pandemic outbreak has not just put the Stock Market into the bear market territory but has turned the mortgage industry upside down

In this breaking news article, we will cover and discuss how The 2 Trillion Stimulus Will Devastate The Mortgage Markets And Affect Lending.

The 2 Trillion Stimulus Will Devastate The Mortgage Markets Unless The Fed Steps In To Help

Many of our viewers still remember the 2008 mortgage meltdown.

  • It was the biggest real estate and mortgage crisis in US history
  • The coronavirus outbreak started in Wuhan, China in December
  • The deadly contagious virus hit the United States like a category-10 hurricane with no notice
  • The US economy has been shut down until further notice
  • The US economy prior to the coronavirus pandemic was the strongest in history
  • Unemployment numbers hit 50-year lows, the Dow Jones Industrial Average surpassed the 29,000 mark, homes were appreciating year after year for the past several years, the 2020 housing market forecast was strong, and Americans were thriving
  • The Dow Jones Industrial Average hit an all-time high of 29,000 in February
  • Other equity markets have all reached all-time historic highs
  • Then the financial markets tanked to bear market territory
  • The Dow Jones is hovering around 20,000 which is the lowest level since President Trump’s election
  • Many states had their governors a declaration of a state of emergency ordering its residents to stay home
  • Many governors orders non-essential businesses such as restaurants, bars, offices to be closed until further notice
  • President Donald Trump and his administration have been very proactive during the crisis
  • It is clear the coronavirus has taken a major toll on the US economy
  • It has affected workers and businesses
  • Economists expect the unemployment rates can get as high as 30% in the coming weeks

One important industry the press is not covering too much is the mortgage industry. The mortgage industry is in major chaos. We may have a more serious mortgage meltdown in the mortgage industry if the Fed does not step in fast.

The 2 Trillion Stimulus Will Devastate Mortgage Markets Due To Forbearance Clause

When the federal government passed the third phase of the 2 trillion coronavirus stimulus package, they included unemployed workers can instantly get a forbearance on their home loans.

  • What this means is unemployed workers can defer their mortgage payments up to 12 months
  • However, the mortgage servicer is still liable to pay principal and interest to the investor
  • Mortgage servicers also need to pay property taxes and insurance
  • There is no mention of how the federal government will be helping the mortgage companies with this
  • If the federal government does not have a stimulus package to help mortgage servicers, you will see many mortgage companies go bankrupt and/or out of business
  • This is worrying many mortgage lenders
  • Last week’s unemployment claims have skyrocketed to 3.4 million, a number never seen in the history of the U.S.
  • If the federal government does not help lenders and/or implement a plan on how to help lenders to offset these potential millions of forbearance requests, the U.S. is poised for a greater mortgage meltdown than the one from 2008
  • The move by the government in implementing the forbearance for unemployed workers hurt by the coronavirus pandemic for up to 12 months is so there is not a wave of foreclosures
  • Unfortunately, this will spark a wave of mortgage companies going out of business

This will most likely have a domino effect that would most definitely crash the housing and mortgage markets far more devastating than the 2008 financial crisis.

The 2 Trillion Stimulus Will Devastate Mortgage Markets Unless The Federal Reserve Steps In

What happens if 2 trillion stimuli destroy the mortgage markets unless the Federal Reserve enters

Lenders, in general, can handle a certain percentage of borrowers who cannot make their mortgage payments.

  • It takes time for a lender to do a workout and/or loan modification
  • However, lenders are expecting a flood of borrowers who have gotten unemployed due to the pandemic
  • Just in one week, over 3 million Americans filed unemployment claims
  • This figure is nothing compared to what analysts are expecting in the weeks to come
  • A flood of missed mortgage payments will definitely threaten and crush the real estate and lending industry unless the Fed steps in with substantial emergency lending
  • This figure is estimated in the trillions
  • Many lenders are in limbo with no answers to important questions
  • Many are nervous that The 2 Trillion Stimulus Will Devastate Mortgage Markets and bankrupt most
  • However, experts and economists are expecting the Federal Reserve Board will be stepping in soon after the phase three coronavirus stimulus becomes law

The House of Representatives has passed the 2.3 trillion coronavirus stimulus package on Friday, March 28th.

The 2 Trillion Stimulus Will Devastate Mortgage Markets Especially Servicers

The government is making forbearance easy for borrowers of mortgages.

  • As long as they are unemployed, all they need to do is complete and submit a one-page form
  • By federal law, mortgage servicers need to grant them a forbearance of up to 12 months
  • However, this is like sticking it to mortgage servicers
  • There is nothing in the phase three stimulus package on how the government is compensating servicers
  • After granting borrowers forbearance due to unemployment, mortgage servicers are still on the hook with investors and need to pay the principal and interest on those mortgage payments
  • Not only that, but mortgage servicers also need to continue to make payments to mortgage insurers, insurance companies for homeowners insurance premiums, and property taxes to local government
  • Just in one week, the unemployment claims surpassed over 3 million
  • This number is expected to skyrocket in the weeks to come
  • Servicers of mortgage loans do not have a fraction of the cash needed to cover the missed mortgage payments due to forbearance

Analysts are expecting a flood of defaults by mortgage servicers. This would create a mortgage meltdown far more severe than the one we had in 2008.

Mortgage Companies Are On High-Alert

Which means that mortgage companies are on alert

Mortgage companies are in a state of chaos.

  • All non-QM lenders have halted originating, processing, underwriting, and funding non-QM mortgages
  • All clear to close (CTC) and mortgage rate locks on non-QM loans are null and void
  • Many non-QM lenders have gone out of business while some are contemplating bankruptcy
  • As of today, we do not know the fate of non-QM mortgages going forward
  • Non-QM loans were gaining popularity in recent years and are a huge part of the mortgage industry

Mr. Cooper is one of the nation’s largest mortgage banking firms. Jay Bray is the Chief of Executive Officer of Mr. Cooper Mortgage. Jay Bray said the following:

It would be complete contagion. The $2 trillion coronavirus pandemic stimulus without the Fed help mortgage servicers would turn into a housing crisis. One in four Americans could ultimately request mortgage payment deferrals. The bill passed by the Senate would allow borrowers with federally backed mortgages who have a financial hardship directly or indirectly from the coronavirus pandemic to request forbearance. Borrowers can postpone mortgage payments for 180 days without incurring fees or penalties. And they can request to extend that forbearance for another 180 days. This is not loan forgiveness. The missed mortgage payments would still be owed eventually, likely by extending the duration of the loan. The mortgage industry, like many others, is turning to the Fed to invoke emergency powers and serve its role as the lender of last resort. In this case, the US central bank would provide a line of credit mortgage servicers could draw on to make the payments to mortgage investors on behalf of borrowers. It can’t come fast enough. We need a solution now. People are going to stop making their payments as early as April. American homeowners are going to be hit like never before. This is unprecedented.

Banks Versus Non-Bank Access To Capital

There is no maximum cap and/or limit on the Federal Reserve Board pumping money into the economy according to Fed Chairman Jerome Powell.

Jerome Powell issued the following statement:

When it comes to this lending, we’re not gonna run out of ammunition. That doesn’t happen.
There are no problems and/or issues at big bank mortgage servicers.
  • Big bank mortgage services are not going to be affected in making the principal and interest payments to investors
  • Big banks such as JP Morgan Chase, Wells Fargo, Bank of America can always borrow from the Fed’s discount window to make payments to investors
  • However, nonbank mortgage lenders like Mr. Cooper, Quicken Loans, and hundreds of others do not have the option to borrow from the Fed’s discount window
  • The Trump Administration may need to give the nonbank mortgage lenders the ability to borrow from the Fed in order for the nonbank mortgage servicer to be able to make the monthly principal and interest payments to investors

Mr. Cooper’s CEO Jay Bray issued the following statement:

There’s not one nonbank servicer in the industry that can make these payments. Unlike the rescues of the airline and aerospace industries, nonbank mortgage servicers are not asking for a bailout from the Fed. We want to be able to borrow the monthly principal and interest from the central bank to be able to pay investors. The cash advances from the Fed would be repaid when the mortgages are paid off or refinanced. We’re looking for assistance. This is not a bailout. This money is not coming into our company for payroll. It’s making the borrowers’ payments.

Does The Government Realize The Impact Massive Forbearance Has On the Mortgage Industry?

The MBA (The Mortgage Bankers Association) has been in talks with the Treasury Department and the Trump Administration for the past several weeks about the devastation the mortgage industry will get with the massive forbearance requests. According to Robert Broeksmit, the Chief Executive Officer of the Mortgage Bankers Association, the government has been extremely understanding about the potential impact of the mortgage industry with the wave of forbearance requests by unemployed homeowners. Initial numbers indicate that 30% of homeowners will request forbearance of up to 12 months. Advancing requirements on mortgage servicers could exceed $75 billion.

Robert Broeksmit issued the following statement to the press:

The cash demand from what could be a large spike in missed payments would overwhelm the sector. The government needs to urgently and swiftly develop a lending facility for mortgage servicers. You would see widescale failures within the servicing system. That would raise real questions about the plumbing of the housing finance system going forward.

What Experts And Economists Predict

What Experts And Economists Predict

Economists and analysts predict the Fed and the Trump Administration will include a package for mortgage services in Phase Four of the stimulus package which is being worked on now. The Federal Reserve Board does not want another credit crisis and stated it is willing to do everything in their powers to avoid another 2008 financial crisis. The US central bank agreed to set up an entity to purchase corporate bonds. The Fed agreed to purchase short-term debt issued by larger companies as well as to purchase commercial paper. The US central bank has also committed to purchase an unlimited amount of mortgage bonds as well. It is not an if but rather a must that the Fed needs a facility to lend to mortgage servicers as soon as possible. Time is of crucial importance. This is a breaking story. Gustan Cho Associates will update our viewers on upcoming updates on this topic. Stayed Tuned!!!