Refinances rage on as the Senate approves $484 billion relief package and states waiting to open

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Published Date 4/22/2020

Interest rate markets in early trading this morning were unchanged from yesterday. The stock indexes in pre-open trading were higher after two days that dropped the DJIA 1200 points on Monday and Tuesday. A new stimulus bill cleared the US Senate, and European leaders weighed an emergency loan package to avoid mass layoffs, the latest efforts to prop up economies flattened by measures to contain the new coronavirus. Business owners are waiting for government assistance to survive the pandemic, the Senate yesterday approved additional funds for small-business relief, including $310B for the PPP and $60B for the EIDL programs (SBA’s Economic Injury Disaster Loan program). The House is expected to sign off on the stimulus plan tomorrow when members get back to Washington. The details were essentially what they were two weeks ago when Democrats were slow to react. The $484 billion interim emergency bill expanded funding for small businesses and hospitals, and money for coronavirus testing. The bill puts about $310B more toward the PPP, which Congress initially gave $350B when it was created in March. In the bill, $25B will fund the manufacturing and purchasing of tests. Of those funds, $11B is allocated to states and localities to administer tests and conduct contact tracing. Once this bill is signed, the next bill will begin to evolve, $400B? Which will likely be directed to the poor and to infrastructure building projects.

The plan now is to get a grip on the spread of the virus and assist people and businesses in surviving this never before US shut down. That isn’t news, what will be for many is the explosion of the debt the Treasury is building, and increased balance sheet at the Fed. Neither could be side-stepped and had to be done; once this situation is over (next year and thereafter), the US and global debt burdens will send interest rates higher coping with the costs. We expect the 2020 Treasury debt this year up about $3 trillion from $984B in 2019. The Fed balance sheet +$3 trillion from $800B before the virus. $5.5 trillion of global central bank asset purchases over the next 12 months. Debts in other global economies, as well as the US, will likely cause major disruptions in currency markets.

States increasingly wanting to begin opening their economies while virus experts worry about the timing; the Trump administration also worries. It is a potential Catch 22; waiting too long to get the economy back on track will lead to a deeper recession. Opening too soon runs the risk of a re-emergence of the spread of the virus that may send the economy into even a deeper and longer-lasting economic decline. Meanwhile, some Republicans are promoting anti-lockdown protests across key electoral battleground states, despite the White House’s cautious guidance on relaxing restrictions.

At 9:00 am ET, the Feb FHFA home price index was thought to be +0.4%, as released +0.7% (Jan revised from +0.3% to +0.5%); yr/yr +5.7% up from 5.4% in January. Old data but nice to see.

At 9:30 am ET, the DJIA opened +450, NASDAQ +180, S&P +54. 10 yr at 9:30 0.60% +3 bps. FNMA 3.0 30 yr coupon at 9:30 unchanged from yesterday’s close and +5 bps from 9:30 yesterday.

This morning weekly MBA mortgage applications generally unchanged from the prior week; the composite -0.3%, purchase apps +2.0% while refinance apps were down 1.0%.

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. In a forbearance agreement, a borrower may skip or make reduced payments for the duration of the agreement. The MBS markets have been unsettled. As a result, the value of servicing rights has plummeted, reverberating through the entire mortgage industry, including origination markets. Better news from the FHFA yesterday, saying 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.

Source: TBWS

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