June 16, 2020 - Market Update

The 10-year note settled a tick lower at 0.702% yield. Mortgage trading volumes were light vs. recent averaged. The central bank’s aggregate mortgage buying was $4.7B, mostly unchanged from the previous session’s $4.5B. The most heavily purchased was the UMBS 30-year 2.5% at $1.8B.

There is nothing like more government stimulus to reinvigorate the stock market. The day started with fears of a second wave and ended with waves of liquidity completely reversing the session from the open. The S&P 500 closed +0.83% with tech outperforming (NASDAQ +1.43%). Headlines flashed that the Federal Reserve would start purchasing a broad portfolio of US corporate bonds. This should not necessarily be viewed as new as this was already part of the Secondary Market Corporate Credit Facility (SMCCF). Up to this point the central bank has been purchasing ETFs, but they will start buying individual securities this week. The criteria of the bonds that are purchasable remain the same – less than 5yrs to maturity, a US company, IG rated or a fallen angel as of March 22 or later. What is new is that the Fed said it would follow a diversified market index of U.S. corporate bonds created expressly for the facility. The SMCCF is one of nine emergency lending programs announced by the Fed since mid-March aimed at limiting the damage to the U.S. economy by the coronavirus pandemic.

The Mortgage Bankers Association’s (MBA) latest Forbearance and Call Volume Survey revealed that the total number of loans now in forbearance increased from 8.53% of servicers’ portfolio volume in the prior week to 8.55% as of June 7, 2020. According to MBA’s estimate, almost 4.3 million homeowners are now in forbearance plans.

“MBA’s survey results from the first week of June showed a slight uptick in the overall share of loans in forbearance, but this increase was primarily driven by a larger share of portfolio and PLS loans in forbearance. Half of the servicers in our sample saw the forbearance share decline for at least one investor category,” said Mike Fratantoni, MBA’s Senior Vice President and Chief Economist. “Although there continues to be layoffs, the job market does appear to be improving, and this is likely leading to many borrowers in forbearance deciding to opt out of their plan.”

Key findings of MBA’s Forbearance and Call Volume Survey – June 1 to June 7, 2020

• Total loans in forbearance increased by 2 basis points relative to the prior week: from 8.53% to 8.55%.
  • By investor type, the share of Ginnie Mae loans in forbearance remained flat relative to the prior week at 11.83%.
  • The share of Fannie Mae and Freddie Mac loans in forbearance decreased relative to the prior week: from 6.40% to 6.38%.
  • The share of other loans (e.g., portfolio and PLS loans) in forbearance increased relative to the prior week: from 10.03% to 10.18%.
• Loans in forbearance as a share of servicing portfolio volume (#) as of June 7, 2020:
  • Total: 8.53% (previous week: 8.55%)
  • IMBs: 8.43% (previous week: 8.39%)
  • Depositories: 9.24% (previous week: 9.18%)

First time claims for unemployment fell for the 10th straight week to a still painful 1.54 million/week vs. 220,000/week before the Coronavirus, but down from a high of 6.87 million the week ending 3/28/20. Moreover, continuing claims have been steady at 21 million for three straight weeks after rising for eight straight and peaking at 24.9 million the week ending 5/9/20. Before the Coronavirus onset, they were just 1.7 million/week.