Zillow Market Pulse: April 13, 2020

April 13, 2020

Tighter restrictions on mortgages and limited loan offerings placed constraints on borrowers. Mortgage servicers remain at risk, but one government agency announced some temporary relief. And an oil deal was struck, aimed at stabilizing prices amid sharply declining demand.

• Ginnie Mae steps up to offer forgiveness for at-risk mortgage servicers

  • Ginnie Mae will advance payments to investors on behalf of servicers impacted by the coronavirus outbreak.
  • Ginnie Mae guarantees about 30% of agency mortgage-backed securities.

• New data shed light on enduring constraints facing the mortgage industry

  • In March, the MBA Mortgage Credit Availability Index fell to its lowest level in five years.
  • In recent weeks, some of the nation's largest lenders have significantly limited loan offerings and imposed stricter requirements on borrowers.

• An agreement was reached to limit global oil output, but prices barely budged

  • A coalition of nations reached a deal to cut global oil production by 13 million barrels per day.
  • Oil prices fell today on investor speculation that the deal falls short of stabilizing the market in the short-term.

So what? 

We've learned over the past few weeks that government measures intended to support homeowners have led to a flood of applications for relief, but also unintentionally placed mortgage servicers in a bind. According to the Mortgage Bankers Association, 3.74% of all serviced loans were in forbearance as of April 5, compared to just 0.25% on March 2. Of the three government-adjacent organizations that guarantee mortgage loans, Ginnie Mae saw the largest increase in the share of loans in forbearance over that span – up to 5.89%, from 0.19%. Over the weekend, Ginnie Mae announced a program that will assist  servicers facing temporary cash shortages by making payments to investors on their behalf in exchange for a fixed rate of interest to be repaid within the next seven months. Ginnie officials cautioned that this program is not designed to address the entirety of the broad solvency issues facing qualified servicers – applications can only be requested once per month and funds can only be spent on principal and interest payments, not operational or servicing costs. Still, the announcement was welcome news for some mortgage servicers whose short-term capital concerns have also limited their ability to lend. Ginnie Mae covers about 30% of agency mortgage-backed securities and usually focuses on loans originated through organizations including the Federal Housing Administration, Dept. of Veterans Affairs and Rural Housing Service, which generally have lower down payment and/or credit score requirements for borrowers. So far, there is no word on whether similar programs are upcoming through Fannie Mae and Freddie Mac or for non-bank lenders/servicers whose portfolios include a large percentage of loans not backed by any government agency.

While the Ginnie Mae announcement was welcome news, liquidity concerns and general uncertainty persist throughout the mortgage market. The Mortgage Bankers Association's mortgage credit availability index fell 16.1% in March from February, indicating that tightening lending standards. The sub-index for jumbo loans fell particularly hard, suggesting that the market for these larger loans is drying up. Wells Fargo, the nation's largest mortgage lender in 2019, announced last week that it was temporarily limiting the types of mortgages it offers and imposing stricter down payment requirements. JP Morgan Chase – the nation's fourth-largest mortgage lender in 2019 – followed a similar path, stating over the weekend that they will only issue mortgages to borrowers with a FICO credit score of at a least 700, and will require down payments of at least 20%. These measures will likely be unpopular, but they speak to the uncertainty of the times and the difficulty for these organizations to gauge borrowers' ability to repay at a time when millions of people are suddenly out of work. Other lenders have begun following similarly strict measures, as have Fannie and Freddie, which have boosted the requirements on their underwriting guidelines. All told, while mortgage rates appear to be calming down on average, the market for non-agency or "unconventional" loans is still very much broken.

Finally, a deal was struck over the weekend between Saudi Arabia, Russia, the United States and other oil-producing nations to limit pumping in an effort to buoy prices, which have plummeted in 2020. Together, the deal aims to withhold 9.7 million barrels a day of oil from the market – about 13% of global production – and stop a quarrel between certain countries that had exacerbated already-declining market conditions due to a sharp reduction in global oil demand. Prices were expected to plummet on Monday if a deal wasn't struck over the weekend, and storage space for unwanted oil was beginning to run out. Price drops were largely averted, but the kind of price spikes that otherwise may have been expected also didn't materialize, suggesting investors may believe the deal doesn't go far enough — some estimates suggest oil consumption could fall by as much as 30 million barrels/day in April. Still, the news was welcome, if temporary, relief for the U.S. energy industry, which employs about 10 million workers.

 

Click here to read past editions of Zillow’s Market Pulse updates.

The post Zillow Market Pulse: April 13, 2020 appeared first on Zillow Research.

via Zillow Market Pulse: April 13, 2020