August 10th, 2020 1:43 PM by Richard Sardella MLO.100007700/NMLS 233568
Numbers for mortgage forbearance applications drop
In some cases these days (except the stock market) it’s great to hear when numbers go down. According to the Mortgage Bankers Association, the number of mortgages in forbearance fell for the sixth straight week, hitting 7.74%.
Fitch Ratings describes forbearance in the following terms: “Generally, mortgage forbearance programs have allowed borrowers to shift the skipped monthly principal and interest payments onto the end of their mortgage payment schedules. This finite payment holiday has provided homeowners greater liquidity and increased capacity to pay down other debt such as credit cards and auto loans that generally have shorter forbearance options. This, along with government stimulus and deferred tax payments, may have contributed to better than expected credit performance of credit card and auto loan portfolios in 2Q20.”
MBA’s Ryan Smith writes, “The latest Forbearance and Call Volume Survey found that the total share of loans in forbearance had dropped six basis points to 7.74% as of July 19, down from 7.8% the prior week. MBA estimated that 3.9 million homeowners are currently in forbearance plans.”
He explains how the share of Fannie Mae and Freddie Mac loans in forbearance fell to 5.49%, a 15-basis-point improvement. “It was the seventh week in a row that the share of Fannie and Freddie loans in forbearance dropped.” All is not yet rosy, however, as the percentage of loan in forbearance for depository servicers fell to 8.06%, while the percentage of loans in forbearance for independent mortgage bank servicers rose to 7.85%.
He quotes MBA’s Mike Fratantoni, who says, “The share of loans in forbearance declined by a smaller amount than in previous weeks, as the pace of borrowers exiting forbearance slowed. Although the GSE portfolio of loans in forbearance should continue to improve, Ginnie Mae’s portfolio saw an uptick of both loans in forbearance and borrowers requesting forbearance. The high level of unemployment claims in recent weeks may be playing a role, as weakness would likely impact Ginnie Mae’s portfolio first.”
Source: Mortgage Bankers Association | FitchWire | TBWS
How Rates Move:
Conventional and Government (FHA and VA) lenders set their rates based on the pricing of Mortgage Backed Securities (MBS) which are traded in real time, all day in the bond market. This means rates or loan fees (mortgage pricing) moves throughout the day, being affected by a variety of economic or political events. When MBS pricing goes up, mortgage rates or pricing generally goes down. When they fall, mortgage pricing goes up. Tracking these securities real-time is critical. For more information about the rate market, contact me directly. I’m among few mortgage professionals who have access to live trading screens during market hours.
Rates Currently Trending: Neutral
Mortgage rates are trending sideways so far today. Last week the MBS market improved by +24bps. This was enough to move rates or fees lower last week. We saw moderate rate volatility through the week.
This Week's Rate Forecast: Neutral
Three Things: These are the three areas that have the greatest ability to impact rates this week. 1) Stimulus, 2)Coronavirus and 3) Domestic
1) Stimulus: President Trump has signed an Executive Order designed to get around the impasse between the Senate and House in competing stimulus bills. His order would reinstate the "helicopter money" for those who are unemployed and replace their $600 weekly checks with $400 weekly checks. It also includes a "payroll tax holiday" for those making less than $100K per year and eviction stays for those not making rent payments. Many expect legal challenges to this recent order.
2) Coronavirus: The Covid-19 pandemic continues to grow. Its economic impact is still the primary concern of long bond traders with the consensus of further deterioration of economic conditions and not a "v" shaped recovery. Here are the key headlines to set the table for the week.
3) Domestic: The two biggest reports of the week are Initial Weekly Jobless Claims and Retail Sales. We also get key inflationary readings with PPI and CPI.
Treasury Dump: Here is this week's Treasury auction schedule:
This Week's Potential Volatility: Average
Rate volatility could be elevated this week with all of the economic data scheduled for release, particularly the inflation data Friday. Markets will also be paying very close attention to the stimulus developments.
If you are looking for the risks and benefits of locking your interest rate in today or floating your loan rate, contact your mortgage professional to discuss it with them.
Richard Sardella has been actively managing and providing services in the mortgage industry for over 27 years. Richard serves on the board of directors as President of Colorado Home Mortgages Inc.
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