Category Archives: Mortgage

Landlords Squeezed Between Missed Rent and Overdue Mortgages

(Bloomberg) — Chuck Sheldon, a landlord and property manager in Albuquerque, New Mexico, has owned apartments for more than half a century. These days, he can barely keep up with all the moving pieces.

He’s talking with owners of roughly 1,700 units he manages, who are worried what’s going to happen if rent checks stop coming in. He’s talking with tenants, about half of whom he assumes will be delinquent this month because they lost jobs or choose not to pay. And he’s in discussions with banks, trying to figure out how he’ll make mortgage payments on the properties he owns during a rapidly worsening global health crisis.

“That’s the $100,000 question,” said Sheldon, the president of T&C Management. “I’ve never seen something like this.”

It’s rent day in America, with roughly $22 billion in monthly payments on apartments due, according to CoStar. But just how much of it gets paid in the coming days is anybody’s guess.

Some large property owners have already rolled out payment plans and halted evictions as the coronavirus outbreak roils the economy. But many apartments in the U.S. are essentially small businesses that tend to have less financial flexibility and will need help in the coming months.

Few Choices

There are few good choices for the millions of Americans who lost their jobs and have no clear prospects for when they’ll get them back. Eviction moratoriums, unemployment benefits and cash payments from the federal government could help many keep a roof over their heads.

But nearly half of the nation’s 44 million renter households were already stretched financially. Over the next six months, they could need as much as $96 billion in relief, according to a recent analysis by the Urban Institute.

Housing advocates have urged Congress to protect low-income renters and homeowners as deadlines loom. On a conference call Tuesday, the Center for Popular Democracy called for eviction freezes and rent and mortgage payment cancellations. The group stopped short of pushing for a rent strike, an idea other activists have floated.

Sid Lakireddy, a landlord and the president of the California Rental Housing Association, said such efforts are “just plain wrong.” Property owners need to help tenants if they’re able, but renters should not take advantage of the situation, he added.

Withholding Payment

On a recent visit to an apartment building he co-owns in Berkeley, California, Lakireddy bumped into a tenant who threatened to withhold rent because of a new ban on evictions. He pointed out that the tenant hadn’t lost a job.

“I said, ‘You’re not affected by this economy. You’re on Social Security,’” Lakireddy recalled. “‘Don’t screw with me, man.’”

Not far away, in Oakland, Krista Gulbransen manages a duplex for a small property owner. She recently got a request from a tenant to lower the $3,495 monthly rent on his three-bedroom unit by roughly 40%. The renter makes about $172,000 a year at an established technology company, she said.

“I just didn’t understand,” said Gulbransen. “He’s asking for a rent reduction of about $1,500, saying he doesn’t know where his job is going to be in the next few months.”

Such anecdotes are probably rare, said Maya Brennan, a policy analyst at the Urban Institute.

“There will be a very small sliver of economically privileged renters who will try to use this to get some extra advantage,” she said. “The vast majority of renters know that they need to figure out a way to keep a roof over their heads and are going to be trying to ask only for the level of relief that they truly need.”

Not all the conversations between landlords and tenants are fraught. Hasan Leviathan, 20, lives by himself in a two-bedroom house in Frostburg, Maryland, where he is studying to become a physical therapist. In March, he lost his job at Kay Jewelers. Without that income, his $570 in rent is too burdensome, even with help from his mother, he said.Leviathan was prepared to move home, but his landlord agreed to stretch the April payment over the next six months, and also offered him a minimum wage construction job, which he plans to accept.

“People need help more than ever,” Leviathan said.

Trickling In

Chris Athineos, a Brooklyn landlord who owns nine buildings with about 150 apartments, half of which are rent-stabilized, said he’s sure some of his tenants have lost jobs and plans to work with them, perhaps offering the option of making partial payments.

Some rent checks for April have trickled in, he added. And a handful of tenants who have relocated out of the city called about making payments electronically, he said. It won’t be until the middle of the month that he’ll get a full accounting of how much of the expected rent came in.

Athineos said rent freezes don’t make sense, unless landlords get relief from property taxes. For now, he’s still paying a staff of five maintenance workers — on top of his mortgage, taxes and water and sewer bills.

“It’s kind of wait and see,” he said. “We’re holding our breath.”

Source: byNoah Buhayar, Oshrat Carmiel and Nic Querolo Bloomberg, In Yahoo

Ginnie Mae Weighs Bailout For Servicers After Major Mortgage-Lender Slashes 70% Of Workforce

Update (1500ET): A top U.S. regulator is exploring whether to throw a lifeline to mortgage servicers stressed by the coronavirus pandemic by tapping a program meant to address natural disasters.

Bloomberg reports that, in order to prepare for an expected wave of missed payments as borrowers deal with the economic fallout from the virus, officials at Ginnie Mae are considering using relief programs most often activated in the wake of hurricanes, floods and other calamities, according to people familiar with the matter.

Mortgage-industry lobbyists unsuccessfully tried to get Congress to include some sort of liquidity facility for servicers in the stimulus bill. Still, many servicers expect the Treasury Department and the Federal Reserve to create a lifeline for servicers out of other money in the $2 trillion package.

Earlier this week, ZeroHedge highlighted the fact that numerous mortgage-related companies were facing considerable – and in some cases existential – crises in their day-to-day operations amid margin calls, illiquidity, and a drying up of demand for non-agency products thanks to The Fed’s intervention.

First, its was AG Mortgage Investment Trust which last Friday said it failed to meet some margin calls and doesn’t expect to be able to meet future margin calls with its current financing. Then it was TPG RE Finance Trust which also hit a liquidity wall and could not repay its lenders. Then, on Monday it was first Invesco, then ED&F Man Capital, and then the mortgage mayhem took down MFA Financial, which stated “due to the turmoil in the financial markets resulting from the global pandemic of the COVID-19 virus, the Company and its subsidiaries have received an unusually high number of margin calls from financing counterparties, and have also experienced higher funding costs in respect of its repurchase agreements.”

And now that mortgage-mayhem has impacted one of the largest U.S. mortgage firms catering to riskier borrowers.

Earlier in the week, we mentioned Angel Oak Mortgage Solutions – which specializes in so-called non-qualified mortgages that can’t be sold to Fannie Mae or Freddie Mac – pointing out that the company would pause all originations of loans for two weeks “due to the constant shifts and the inability to appropriately evaluate credit risk.”

And now Sreeni Prabhu, co-chief executive officer of the firm’s parent, Angel Oak Cos., is slashing 70% of the comany’s workforce (almost 200 of its 275 employees).

“The world has dramatically changed,” Prabhu said.

“We have to slow down and re-underwrite in the new world that we’re in. That’s going to take some time.”

Bloomberg reports that Angel Oak is primarily known for its riskier lending arm, which is one of the leaders in funding non-qualified mortgages. Such loans include those made to borrowers who verify their incomes with bank statements instead of tax returns and others who may have recently filed for bankruptcy or had a previous foreclosure that hurt their credit scores.

Angel Oak Mortgage Solutions funded some $3.3 billion of non-QM loans in 2019, making it one of the biggest lenders in the space. In January, Angel Oak’s mortgage units said they planned to fund more than $8 billion of home loans in 2020, but the total is now likely to be perhaps a quarter of that, Prabhu said.

The coronavirus pandemic has brought non-QM lending to a virtual standstill industrywide. Many non-QM borrowers are self-employed, making them among the hardest hit by a broad slowdown in business activity.

Citadel Servicing Corp., another top non-QM lender, said it was halting originations for 30 days, and Mega Capital Funding Inc. told brokers last week that it was suspending its programs for those mortgages “for the foreseeable future,” according to a notice seen by Bloomberg.

Add this halting of originations to the margin calls of the fund side, and it all sounds ominously similar to July 2007, when two Bear Stearns hedge funds (Bear Stearns High-Grade Structured Credit Fund and the Bear Stearns High-Grade Structured Credit Enhanced Leveraged Fund) – exposed to mortgage-backed securities and various other leveraged derivatives on same – crashed and burned and started the dominoes falling…

Source: ZeroHedge

Quicken Loans May Need Emergency Funding Amid Coronavirus Pandemic

Detroit-based mortgage giant Quicken Loans could be facing a cash crunch in coming weeks and possibly need temporary emergency federal assistance if lots of borrowers stop making payments on their home mortgages during the coronavirus pandemic, according to a news report.

The Wall Street Journal identified Quicken Loans as one of the major firms that are bracing for a wave of missed mortgage payments that would require them to quickly come up with billions of dollars that they hadn’t planned on.

This liability would pertain to mortgages that Quicken Loans services. Those are mortgages for which Quicken collects the borrower payments, then passes the payments on to investors who own the mortgages.

Quicken Loans, which survived the Great Recession and real estate market collapse, greatly expanded its mortgage servicing portfolio in the 2010s yet is still better known for originating mortgages.

The company is one of Detroit’s largest employers and the biggest revenue-generator in the business empire of its founder Dan Gilbert.

Mortgage servicers typically must advance the planned mortgage payments to the investors — regardless of whether borrowers make the actual payments that are due. The servicers are also responsible for payments when borrowers are granted a forbearance, or temporary suspension of their mortgage payments.

Even though mortgage servicers are eventually reimbursed for those advanced payments by entities such as Fannie Mae or Freddie Mac that guarantee mortgages, there is a timing mismatch, which can result in a cash crunch.

The Mortgage Bankers Association, an industry group, this week warned the Treasury Department and the Federal Reserve that, under one theoretical scenario, should one-quarter of mortgage borrowers stop making payments or enter forbearance for six months or more, mortgage servicing firms could be on the hook for $75 billion to $100 billion or more.

“In normal and even stressed environments, such as a localized natural disaster, servicers can withstand this liquidity pressure,” Robert Broeksmit, the association’s chief executive, wrote in a letter this week to Treasure Secretary Steven Mnuchin and Federal Reserve Chairman Jerome Powell.

“Widespread, national borrower forbearance at the levels being proposed in response to the COVID-19 outbreak, however, extends well beyond any servicer advance obligations previously envisioned, and is beyond the capacity of the private sector alone to support.”

A Quicken Loans spokesman on Tuesday would not comment on whether the company is facing any potential cash crunch because of mortgage servicing. Quicken was among the first large companies in Detroit to have employees work from home in hopes of slowing the spread of the coronavirus.

“What I can tell you is that Quicken Loans continues to have record-breaking mortgage origination days and weeks,” Aaron Emerson, senior vice president of communications, said in an email. “This is occurring while more than 98% of our team members work from home.”

Liquidity facility

The mortgage bankers association is recommending that the Federal Reserve set up a temporary lending program for mortgage services to keep them solvent during the coronavirus crisis. The program — known as a “liquidity facility” — should be set up before mortgage servicing companies are in a state of emergency, the association says.

The association’s letter described general conditions for mortgage servicers and didn’t name specific firms.

“Virtually no servicer, regardless of its business model or size, will be able to make sustained advances during a large-scale pandemic when a significant portion of borrowers could cease making their payments for an extended period of time,” Broeksmit wrote.

Last week, government-backed mortgage enterprises Fannie Mae and Freddie Mac announced they would suspend foreclosures and evictions for 60 days for borrowers impacted by the coronavirus crisis. Many of Quicken Loans’ mortgages are guaranteed by Fannie and Freddie and other government-backed enterprises.

Quicken pools the mortgages that it originates and bundles them into securities, which it then sells into the secondary market.

A representative for Pontiac-based United Shore, another major mortgage firm in metro Detroit that also services mortgages, could not be reached for comment.

By JC Reindl | Detroit Free Press

$14 Billion Commodity Broker Facing Crushing Margin Calls After Mortgage Hedges Go Wrong


(ZeroHedge) We warned last week that, despite The Fed’s unlimited largesse, there is trouble brewing in the mortgage markets that has an ugly similarity to what sparked the last crisis in 2007. For a sense of the decoupling, here is the spread between Agency MBS (FNMA) and 10Y TSY yields…

At that time, WSJ’s Greg Zuckerman reported that the AG Mortgage Investment Trust, a real-estate investment trust operated by New York hedge fund Angelo, Gordon & Co., is among those feeling pressure, the company said, and, in the latest sign of turmoil in crucial areas of the credit markets, is examining a possible asset sale.

“In recent weeks, due to the turmoil in the financial markets resulting from the global pandemic of the Covid-19 virus, the company and its subsidiaries have received an unusually high number of margin calls from financing counterparties,” AG Mortgage said Monday morning.

Well, they are not alone.

As Bloomberg reports, the $16 trillion U.S. mortgage market – epicenter of the last global financial crisis – is suddenly experiencing its worst turmoil in more than a decade, setting off alarms across the financial industry and prompting the Fed to intervene. But, as we previously noted, it is too late and too limited (the central bank is focusing on securities consisting of so-called agency home loans and commercial mortgages that were created with help from the federal government).

And the aftershocks of a chaotic rush to offload mortgage bonds are spilling over to regional broker-dealers facing mounting margin calls.

Flagstar Bancorp, one of the nation’s biggest lenders to mortgage providers, said Friday it stopped funding most new home loans without government backing. Other so-called warehouse lenders are tightening terms of financing to mortgage providers, either raising costs or refusing to support certain types of home loans.

One prominent mortgage funder, Angel Oak Mortgage Solutions, said Monday it’s even pausing all loan activity for two weeks. It blamed an “inability to appropriately evaluate credit risk.”

Things escalated over the weekend, according to Bloomberg,  when some firms rushed to raise cash by requesting offers for their bonds backed by home loans.

“I ran dealer desks for over 20 years,” said Eric Rosen, who oversaw credit trading at JPMorgan Chase & Co., ticking off the collapse of Long-Term Capital Management, the bursting of the dot-com bubble some 20 years ago, and the 2008 global financial crisis. “And I never recall a BWIC on a weekend.”

And now, commodity-broker ED&F Man Capital Markets has been hit with growing demands to post more capital to cover souring hedges in its mortgage division, according to people with knowledge of the matter.

The requests are coming from central clearinghouses and exchanges, forcing the firm to put up almost $100 million on Friday alone, the people said, asking not to be identified because the information isn’t public.

ED&F, whose hedges exceed $5 billion in net notional value, has been in discussions with the clearinghouses and has met all the margin calls, one of the people said.

As a reminder, ED&F Man Capital is the financial-services division of ED&F Man Group, the 240-year-old agricultural commodities-trading house.

It has about $14 billion in assets and more than $940 million in shareholder equity, according to the firm’s website.

Concern about losses in mortgage bonds could feed turmoil in the overall mortgage market that ultimately drives up borrowing costs for consumers looking to buy homes and refinance. Mortgage rates have risen in recent weeks, despite a fall in benchmark rates.

“The Fed is going to do whatever it takes to restore normal functioning in the market,” said Karen Dynan, a Harvard University economics professor who formerly worked as a Fed economist and senior official at the Treasury Department.

“But we need to remember that the root of the problem is that financial institutions and investors are desperately seeking cash, so in that sense the Fed’s announcement is not everything that needs to be done.”

All of which sounds ominously similar to July 2007, when two Bear Stearns hedge funds (Bear Stearns High-Grade Structured Credit Fund and the Bear Stearns High-Grade Structured Credit Enhanced Leveraged Fund) – exposed to mortgage-backed securities and various other leveraged derivatives on same – crashed and burned and started the dominoes falling…

Source: ZeroHedge

2007 Redux – Mortgage Fund Considers Asset-Sale After “High Number Of Margin Calls”

On the day when The Fed unveils it will be buying agency MBS and CMBS (along with IG corporate debt) in unlimited size “to maintain the smooth functioning of markets,” The Wall Street Journal reports that for at least one major mortgage investor – it could be too late.

For a sense of the scale of collapse in CMBS markets alone, here is CMBX Series 6 BBB- tranche (a popular hedge fund “next big short” trade that is heavily exposed to malls/retail)…

And mortgage markets are becoming notably illiquid (hence The Fed’s unlimited injections)…

And the infamous ‘basis’ trade in ETF land, is extreme…

All of which has left an investment fund focused on mortgage investments struggling to meet margin calls from lenders.

WSJ’s Greg Zuckerman reports that the AG Mortgage Investment Trust, a real-estate investment trust operated by New York hedge fund Angelo, Gordon & Co., is among those feeling pressure, the company said, and, in the latest sign of turmoil in crucial areas of the credit markets, is examining a possible asset sale.

“In recent weeks, due to the turmoil in the financial markets resulting from the global pandemic of the Covid-19 virus, the company and its subsidiaries have received an unusually high number of margin calls from financing counter parties,” AG Mortgage said Monday morning.

The company said it had met “or is in the process of meeting all margin calls received,” though it acknowledged missing the wire deadline for some on Friday.

On Friday evening, the company “notified its financing counter parties that it doesn’t expect to be in a position to fund the anticipated volume of future margin calls under its financing arrangements in the near term,” AG Mortgage said in its statement, which said the company is in discussions with its lenders “with regard to entering into forbearance agreements.”

It’s stock has collapsed…

As have the Preferreds…

Concern about losses in mortgage bonds could feed turmoil in the overall mortgage market that ultimately drives up borrowing costs for consumers looking to buy homes and refinance. Mortgage rates have risen in recent weeks, despite a fall in benchmark rates.

All of which sounds ominously similar to July 2007, when two Bear Stearns hedge funds (Bear Stearns High-Grade Structured Credit Fund and the Bear Stearns High-Grade Structured Credit Enhanced Leveraged Fund) – exposed to mortgage-backed securities and various other leveraged derivatives on same – crashed and burned and started the dominoes falling…

Source: ZeroHedge

Collapse Review

We just witnessed a global collapse in asset prices the likes we haven’t seen before. Not even in 2008 or 2000. All these prior beginnings of bear markets happened over time, relatively slowly at first, then accelerating to the downside.

This collapse here has come from some of the historically most stretched valuations ever setting the stage for the biggest bull trap ever. The coronavirus that no one could have predicted is brutally punishing investors that complacently bought into the multiple expansion story that was sold to them by Wall Street. Technical signals that outlined trouble way in advance were ignored while the Big Short 2 was already calling for a massive explosion in $VIX way before anybody ever heard of corona virus.

Worse, there is zero visibility going forward as nobody knows how to price in collapsing revenues and earnings amid entire countries shutting down virtually all public gatherings and activities. Denmark just shut down all of its borders on Friday, flight cancellations everywhere, the planet is literally shutting down in unprecedented fashion.

Source: by Sven Henrich | Northman Trader

Italy suspends MORTGAGE Payments In The Wake Of Coronavirus Outbreak’s

Payments on mortgages for families and small businesses will be suspended across the whole of Italy due to the coronavirus outbreak’s worsening impact on the country’s economy, the deputy economy minister said today.   

‘Yes, that will be the case, for individuals and households,’ Laura Castelli, Italy’s deputy economy minister, said in an interview with Radio Anch’io today, when asked about the possibility.

Italy’s banking lobby ABI said on Monday lenders representing 90 per cent of total banking assets would offer debt moratoriums to small firms and households grappling with the economic fallout from Italy’s coronavirus outbreak.

The news comes as Italy announced that it had doubled the amount it plans to spend on tackling its coronavirus outbreak to £6.5billion and is raising this year’s deficit goal to 2.5 per cent of national output from the current 2.2 per cent target.  

Source: by Ryan Fahey | Daily Mail