Forbearance numbers tick downward as the economy begins to recover

Rates at a glance
While home sales and refinances are continuing to tick upward, there is a trend that thankfully seems to be going downward — the number of forbearances requests. Forbearance is a special agreement between the lender and the borrower to delay a foreclosure. The literal meaning of forbearance is "holding back." When mortgage borrowers are unable to meet their repayment terms, lenders may opt to foreclose.

According to Black Knight, a mortgage and real estate industry data and analytics tracker which is monitoring the impact of the COVID-19 pandemic on the U.S. mortgage market, after rising sharply in April and then leveling off toward the end of May, the number of American homeowners in forbearance plans has now decreased for the first time since the crisis began. This amounts to a net of 34,000 fewer homeowners in forbearance as of June 2. "The decline was actually greater among government-backed mortgages, which saw 43,000 fewer total forbearance plans than last week, but this was partially offset by an increase of 9,000 new plans on mortgages held in bank portfolios and private-label securities," says the report, according to PRNewswire.

Although the decline is welcome news, it's not yet over. According to Black Knight's McDash Flash Payment Tracker, far fewer homeowners in forbearance remitted May payments than did in April. "If that trend holds true through the end of the month, the market should be prepared for another likely rise in the delinquency rate for May. Also, expanded unemployment benefits are scheduled to end on July 31. It remains to be seen how that will impact both forbearance requests and overall mortgage delinquencies."

This Week's Mortgage Rate Summary

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 in 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: Lower

Mortgage rates are trending slightly lower so far today.  Last week the MBS market worsened by -40bps.  This may have been enough to move rates very slightly higher for the week. We saw high rate volatility at the end of 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) Fed, 2) Trade War, and 3) Coronavirus.

1) Fed: The Federal Reserve Open Market Committee (FOMC) will conclude two days of virtual meetings on Wednesday with their latest Interest Rate Decision and Policy Statement. They were also supposed to release their Economic Projections (dot plot chart), but that appears to be on hold. We will also have a live virtual press conference with Fed Chair Powell that afternoon. MBS traders will be looking for more information on their "taper" of MBS and Treasury purchases.

2) Trade War: The growing rhetoric and "war of words" between the US and China continue to drive concern over the implementation of Phase I as well as many other trade/military/economic concerns.

3) Coronavirus: The pandemic and the impact on our economy continues to be a major factor in long bond prices, even though it appears that the stock markets have moved passed the issue. Here are some key developments to start our week.

  • New York City begins lifting some lockdown restrictions today, which is exactly 100 days since their first confirmed Covid-19 case
  • New Zealand declares itself "Coronavirus free" and lifts all restrictions except for border controls.
  • Global Cases continue to rise and now top 7 million.
  • US Bankruptcies soar 48% in May, the most since the last financial crisis

Treasury Dump: Here is this week's Treasury auction schedule.

  • 06/08 3 year note
  • 06/09 10 year note
  • 06/11 30 year bond

This Week's Potential Volatility: Average

Last week we saw rate volatility spike for the first time in a long time. Last week we had a lot of economic data, including stronger than expected jobs numbers. However, this week will take something unexpected to increase volatility in one of the three above categories.

Bottom Line:

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.

Source: | BlackKnight |TBWS
The tbwsgroup

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