Look Out Below: The Mortgage Market Is About to Revisit 2008 Crisis Woes
If you thought the worst of the financial crisis was way behind us, you’re about to get a rude awakening.
Mortgage Massacre 2.0 is right around the corner.
U.S. households are barely holding up under the weight of the debt they’re carrying.
Household debt’s been rising for 23 quarters in a row and as of April stands at $14.3 trillion, according to the Federal Reserve Bank of New York.
Auto debt’s been rising steadily for 36 months, and now totals $1.35 trillion.
Student loan debt stands at over $1.42 trillion.
Credit card debt totaling more than $1.079 trillion just saw delinquencies rise 9.09% in April, to their highest level in two years.
And most frighteningly, mortgage debt at $10 trillion is up $150 billion in a year, climbing a whopping $29 billion in the first quarter of 2020.
We’re staring down the barrel of the next recession, and the time to act is now. If you’re serious about protecting your wealth, you need to watch this presentation. My publisher put it together, and I need to share it with you because it’s the strongest way to safeguard your wealth.
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As job losses increase and furloughs turn into permanent layoffs, households are going to have a harder and harder time paying their bills, especially their biggest monthly bill, their mortgage or rent.
Or maybe not.
The Coronavirus Aid Relief and Economic Security Act (CARES…because Congress does) grants relief, or “forbearance,” to homeowners whose mortgages are federally guaranteed by Fannie Mae (Federal National Mortgage Association), Freddie Mac (Federal Home Loan Mortgage Corporation), the FHA (Federal Housing Administration), the VA (Veterans Administration), or Ginnie Mae (Government National Mortgage Association).
About three quarters of all mortgages in the U.S. are federally guaranteed, the rest are private, or non-agency mortgages.
Under the CARES Act mortgagors (borrowers) with federally-backed loans are granted 180 days forbearance (loan payments are postponed or reduced but interest still accumulates) and don’t have to pay anything, or give a reason, or document, or show proof of hardship to get a pass on paying.
After 180 days they can apply for an extension of another 180 days, which will be automatically granted.
Non-agency mortgagees (lenders) are mostly granting forbearance also. Borrowers must contact their mortgage servicer and request a repayment schedule or plan.
According to the Mortgage Bankers Association as of April 30, 2020, 7.3% of all active mortgagors, with $841 billion in unpaid principal, asked for and got forbearance. Holders of 6.15% of all Fannie and Freddie guaranteed mortgages got forbearance. And borrowers of 10.5% of all FHA and VA-backed loans have gotten forbearance.
Mortgage servicers say more than half a million mortgagors a week are adding to the growing number of borrowers not paying their mortgages, and they expect that number to increase every week for at least the next 8 to 12 weeks.
Those numbers could turn out to be a drop in the bucket if the St. Louis Federal Reserve Bank’s projection of 47 million Americans eventually becoming unemployed is on target.
Renters, many of whom around the country are protected under non-eviction orders by local governments, aren’t paying their rent. The owners of most homes and apartments experiencing rent strikes are mortgagors, which in renters’ eyes justifies them not paying rent on account of their landlords receiving forbearance.
The FHFA website advises renters: Renters living in a property financed by Fannie Mae or Freddie Mac (use the “loan lookup” tools for Fannie Mae here or Freddie Mac here to find out) are covered by a temporary eviction moratorium. Renters are still expected to pay their rent during the eviction moratorium period, if they can. Those experiencing financial hardship should reach out to their landlord to discuss their situation and potential solutions.
Mortgage servicers, bank and non-bank intermediaries who collect mortgage payments from borrowers and pass through interest and principal to investors who own the mortgages, usually in bundles of “mortgage-backed securities” (MBS), aren’t getting payments. But they still have to pay investors what they’re due.
To continue paying investors servicers must reach into their own pockets to pay up. That got so bad so quickly, the Mortgage Bankers Association and servicer representatives ran to the Federal Reserve and Congress asking for help.
Since servicers not being able to pay back-end investors would implode not only servicing companies, as well as hammer pension portfolios and myriad investment houses and banks, effectively upending the entire mortgage financing market, a rescue plan was adopted in mid-April.
Servicers will have to cover the first four months of passing through or floating payments to investors, after that Fannie and Freddie will pay investors what they’re counting on.
Can you see where this is going?
The mortgage market is once again relying on the giant GSEs (Government Sponsored enterprises), YES, I mean taxpayers ultimately, to bailout borrowers and lenders, again.
Only this time the damage is going to be a lot worse, last a lot longer, and impact the housing market and the economy in worse ways than the 2008 financial crisis did.
How so you ask?
I’ll tell you next time, so stay tuned right here, you’re not going to want to hear this, but you need to because it’s about your Total Wealth.