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3 million Americans skip mortgage payments

Scorpio

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#1
3 million Americans skip mortgage payments, but Fannie Mae and Freddie Mac will cut mortgage servicers a break
Published: April 21, 2020 at 1:36 p.m. ET
By
Jacob Passy

5
As of April 12, nearly 6% of all mortgages nationwide were in forbearance


With many people losing their jobs because of the coronavirus pandemic, millions of Americans are now being allowed to skip their monthly mortgage payments.

As the number of Americans requesting forbearance on their home loans rises, Fannie Mae US:FNMA and Freddie Mac US:FMCC are relaxing rules for mortgage servicers.

As of April 12, nearly 6% of all mortgages nationwide were in forbearance, according to data released late Monday by the Mortgage Bankers Association. That equates to roughly 3 million homeowners, MBA chief economist Mike Fratantoni said. In a forbearance agreement, a borrower may skip or make reduced payments for the duration of the agreement.

In response, the Federal Housing Finance Agency said Tuesday that servicers will only need to advance scheduled monthly principal and interest payments to investors for four months once a mortgage borrower has entered forbearance. After that, servicers will not be expected to advance scheduled payments while the borrower is in forbearance, regardless of the size of the servicer.

The move aims to bring “stability and clarity” to the $5-trillion housing finance market backed by Fannie and Freddie, FHFA Director Mark Calabria said in the announcement. “Mortgage servicers can now plan for exactly how long they will need to advance principal and interest payments on loans for which borrowers have not made their monthly payment,” Calabria said.

The CARES Act stimulus package guaranteed that all homeowners with federally-backed mortgage could receive forbearance for up to one year, if they are struggling to meet mortgage payments due to loss of income as a result of the coronavirus pandemic. “Forbearance inquiries will likely rise again as we approach May payment due dates,” Fratantoni added.

Because servicers are now required by law to offer forbearance to millions of homeowners, the mortgage servicing industry is facing a crisis. Under normal circumstances, mortgage servicers generally still need to make payments to the investors who own a loan, even if the borrower is delinquent or in forbearance.

The CARES Act did not include any funding for servicers. FHFA’s Calabria downplayed the risk facing servicers, arguing that it wasn’t systemic. The FHFA’s move will reduce some of this strain on servicers whose mortgages are backed by Fannie Mae; Freddie Mac’s policies already only required servicers to make payments to investors for four months if the borrower was missing payments.

The FHFA also clarified that mortgage loans with COVID-19 forbearance will be treated in the same manner as in the case of a natural disaster. This means that these loans will be allowed to remain in mortgage-backed securities pools. Normally, when mortgage loans are delinquent for more than four months they are purchased out of MBS pools by Fannie and Freddie.

But some analysts argued that the relaxed stipulations the FHFA announced Tuesday won’t be enough. Stephen Stanley, chief economist at broker-dealer Amherst Pierpont, wrote in a research note that there will need to be a “broader program of support from either the Fed or the federal government” to absorb losses shouldered by the mortgage services.


https://www.marketwatch.com/story/3...ge-servicers-a-break-2020-04-21?mod=home-page
 

Voodoo

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This just can't end well.... It's amazing somehow homes are still going quickly around here. We are about the last of the areas to shift but still. I don't know how the banks are still willing to loan them money when they can just turn around and not pay.
 

hammerhead

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This just can't end well.... It's amazing somehow homes are still going quickly around here. We are about the last of the areas to shift but still. I don't know how the banks are still willing to loan them money when they can just turn around and not pay.
Not everyone is without an income. Banks are going to do what makes them money.
 

Voodoo

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They don't make money giving someone $200,000 who can then immediately turn around and not make a single payment. The problem is all the risk has been transferred to some sucker, either the government messes or even worse as some mangled bond market.
 

hammerhead

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They don't make money giving someone $200,000 who can then immediately turn around and not make a single payment. The problem is all the risk has been transferred to some sucker, either the government messes or even worse as some mangled bond market.
They wouldn't give a mortgage to someone that is laid off. there are still people that are gainfully employed. It's not like everyone that has a mortgage can take advantage of the deferments.
 

Voodoo

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Everyone can though, it's in the law.

And it doesn't take many to switch the entire conversation from a bank profiting to huge loses. At these low rates the monthly interest is fairly small. Let's assume they make about $600 / month on the larger loans for 30 years at 3.5% interest. If we also assume they lose maybe 20% having to repo a house the loss would be $40,000. So my basic math says that any rate more than 1/65 loans (1.5%) is big trouble. Bigger down payments shifts that a little but you get the idea.
 
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hammerhead

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Now me, on the other hand, am taking advantage of the deferments as my wife has been furloughed. Her employer is carrying the insurance for now and they hope to be able to reopen in May but with our guvner it doesn't look promising. Shiet, with the extra 600 added to unenjoyment you know it's more lucrative to not work. She appreciates that but is anxious to get back to work. It's not like we can do much now anyway.

This will give us a chance to get caught up on the other bills like the electric which during winter months has been close to 500 american dollars a month. That's our heat. We have a budget plan that gets set around March to get caught up on the balance but even that is $355 a month that usually runs until mid summer.

We can implement the budget plan that I've been working on but have not been able to put into practice because we have been just trying to beat shut offs and foreclosure. When I talk with my credit union, which I do once a month because they call and ask when I'll get the previous months mortgage payment to them, they are really pleasant and helpful. The collections department was very busy even before the shut downs. One of the people that calls me told me that they had a delinquent customer tell them they just got back from vacation.
 

hammerhead

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Everyone can though, it's in the law.

And it doesn't take many to switch the entire conversation from a bank profiting to huge loses. At these low rates the monthly interest is fairly small. Let's assume they make about $600 / month on the larger loans for 30 years at 3.5% interest. If we also assume they lose maybe 20% having to repo a house the loss would be $40,000. So my basic math says that any rate more than 1/65 loans (1.5%) is big trouble. Bigger down payments shifts that a little but you get the idea.
Wasn't aware the coverage was so broad.
 

hammerhead

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Everyone can though, it's in the law.

And it doesn't take many to switch the entire conversation from a bank profiting to huge loses. At these low rates the monthly interest is fairly small. Let's assume they make about $600 / month on the larger loans for 30 years at 3.5% interest. If we also assume they lose maybe 20% having to repo a house the loss would be $40,000. So my basic math says that any rate more than 1/65 loans (1.5%) is big trouble. Bigger down payments shifts that a little but you get the idea.
Can you show where it is stated on other than fed back mortgages that anyone can be accepted? I can't find any info.
 

Voodoo

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Can you show where it is stated on other than fed back mortgages that anyone can be accepted? I can't find any info.
The fed backs most of the loans. Small banks that hold them in house take far less risk, because you know, they are taking the risk. I guess I can look for the Federal share.
 

hammerhead

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The fed backs most of the loans. Small banks that hold them in house take far less risk, because you know, they are taking the risk. I guess I can look for the Federal share.
Not doubting you at all. I found one article from Forbes that lists some of the ways to get a deferment. they also list ways lenders will want to get payed back which could be all owed at once when deferment ends. Mine was put on the end part of the loan along with all the late charges.
 

ZZZZZ

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This just can't end well.... It's amazing somehow homes are still going quickly around here. We are about the last of the areas to shift but still. I don't know how the banks are still willing to loan them money when they can just turn around and not pay.
Banks make their money on up-front fees and closing costs. They turn around and sell the mortgage to some Wall Street Banksters who turn it into a pseudo bond called a CMO and sell it to investors. The originating bank is out of the loop, they don't care all that much if the mortgage goes into default. Not their problem.
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Voodoo

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Banks make their money on up-front fees and closing costs. They turn around and sell the mortgage to some Wall Street Banksters who turn it into a pseudo bond called a CMO and sell it to investors. The originating bank is out of the loop, they don't care all that much if the mortgage goes into default. Not their problem.
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Of course, all made possible by the litany of government agencies. We'd have a LOT less problems if the banks had to keep the risk. I'm having real problems trying to find a share of the market that isn't backed by a government agency, ie portfolio loans. I did see that they relaxed the requirements on the servicers, who were supposed to keep making the payments regardless if the home owners were paying. Edit: My bad, should have read Scopio's article. They are showing the Fannie, Freddie, FHA, and VA total share at 69%. I'm sure there are some others that could be added as well. And the rest of the market almost all follow the Fannie Mae guidelines.

The risk doesn't just disappear though, just a question of who gets left holding the bag.
 

Voodoo

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everything

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Banks know they are going to take a hit, charge offs, etc. and even though fed, even ECB/IMF/whatever they are relaxed capital requirements, banks are more than likely building up their capital or reserves. They don't know what is going to happen, they are middle men. Banking off interest, and learned the government teat theory long, long ago as they have been bailed out numerous times before. They just know the drill, last man standing..

Forbearance is going to work out really good for banks, it will expand the personal loan market extensively, because that will be their offering, and the people will be forced to take it.
 

Cigarlover

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Banks make their money on up-front fees and closing costs. They turn around and sell the mortgage to some Wall Street Banksters who turn it into a pseudo bond called a CMO and sell it to investors. The originating bank is out of the loop, they don't care all that much if the mortgage goes into default. Not their problem.
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Any idea how they value these when they put them up for sale or how the investor values them? Seems like the banks must make a killing.
1st they require some sort of down payment sometimes. Then they charge points and closing costs covering all of the initial costs to write the loan. Then they create money out of thin air and charge interest on it over 30 years but the kicker is it's front loaded so most of the interest is paid in the 1st 5 years.

How does one value a front loaded bond like that. A 200k loan may be worth 300k over the 30 years. Only 100k is the interest portion though. Of that about 35-40k is paid in the 1st 5 years.

Do investors pay a premium on that 200k loan thinking they can get a better than average return for those first few years? Even if they only get 205k or 210k thats money for nothing.
 

Voodoo

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Any idea how they value these when they put them up for sale or how the investor values them? Seems like the banks must make a killing.
1st they require some sort of down payment sometimes. Then they charge points and closing costs covering all of the initial costs to write the loan. Then they create money out of thin air and charge interest on it over 30 years but the kicker is it's front loaded so most of the interest is paid in the 1st 5 years.

How does one value a front loaded bond like that. A 200k loan may be worth 300k over the 30 years. Only 100k is the interest portion though. Of that about 35-40k is paid in the 1st 5 years.

Do investors pay a premium on that 200k loan thinking they can get a better than average return for those first few years? Even if they only get 205k or 210k thats money for nothing.
I mean, weve always known that the ability to make money from nothing is a darn profitable business
 

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Gov loan MBS’s are different. Short version is if your loan note rate is say 5%, it’s bundled with other loans into an MBS security (bond) yielding say 4.5%. Investors buy those at par getting their 4.5% because it’s better than treasuries and safer than CMO’s and Corporate bonds. The servicer gets to keep the difference between the note rate and bond rate as profit less a guarantee fee paid to Fannie...say half. Really rough made-up numbers but that’s how it works.