Mortgage Forbearance, Rate Rodeo, Jobless Claims, Fed Funds

Forbearance: Fannie, Freddie, the department of HUD and other banks have announced temporary forbearance for mortgage payments. What does that mean? Well it will depend on your servicer’s terms (who you pay your mortgage to). If you are considering utilizing this, call them immediately. Investopedia provides a basic definition – the lender allows you to miss payments without foreclosing on you. After the agreed upon period is up, the entirety of these missed payments is due. So if you pay $2,000 a month and you go into hardship forebearance for 6 months, come month 7 you will owe $12,000 + $2,000 for your next mortgage payment. If you are going to take this route make sure you have good communication with your servicer and confirm they won’t report to the credit bureaus your missed/late payments. A single 30 day late mortgage payment seriously damages your credit and will be on your credit report for 7 years.

Rates – Mortgage Backed Securities went to the rodeo this week. The fluctuation over the last 2 weeks is triple the fluctuation of the previous quarter. Banks & Lenders have recently worsened pricing due to: capacity issues, liquidity issues (margin calls), and most recently unemployment and foreclosure risk. Rates also improved during certain days and time periods due to massive FED purchasing of Mortgage Backed Securities. I had a day this week where we repriced 3 times during the day.

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Jobs – historic low jobless claims evaporated this week as the ‘shelter in place’ edict and business closures caused by Covid-19 have caused layoffs nationwide. Goldman Sachs is predicting a staggering 2.25M in jobless claims next week. During the recent recession the largest number was 600,000. In OH approximately 140K claims were made and the FED asked states to stop reporting until the actual report is released on Thursday next week. If the prediction materializes the chart would look something like this.

GS initial claims projection 2x1 with arrow
HYPOTHETICAL CHART
30 Year Fix Rate vs Fed Funds rate

Fed – The central bank lowered the Fed Funds rate in an emergency move from 1.25% to 0.25%. This did not make mortgage rates zero % like many click-baity articles insinuated. The Fed Funds Rate is the rate that banks lend each other money at. The Fed also started purchasing additional treasury bonds from banks and temporarily suspended the Dodd-Frank rule that demands banks maintain a 10% liquidity position and pass a stress test. Why? So banks have flexibility to get cash quickly in case they need it. When the economy slows down people dip into savings or investment accounts and access cash from their banks so the Fed made sure banks could handle increased capital demand.

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