Consumers Will Eventually Pay for Payment Forbearances

The FHFA announced that lenders selling loans that are in payment forbearance to Fannie Mae and Freddie Mac will be taking a 500 – 700 basis point haircut.  In other words, a $300,000 loan that is in forbearance will have a market value between $279,000 – $285,000.  When you consider that the latest report showed that 6.4% of mortgage loans in the US are currently in forbearance, we can assume there will be a tremendous loss taken by many lenders.  It is amazing that such a large number of mortgage holders are already in forbearance and how rapidly that number is growing.  The key point of this is that in the end, new mortgage borrowers will soon be paying the price to cover this.  We can expect to see lenders raise rates to cover the losses they are incurring.

In economic news, Durable Goods Orders fell by 14.4%, which makes sense given the current environment.  Car sales have suffered tremendously, as fewer buyers are at car lots lately looking to make a change.  As a result, most car manufacturers have created significant incentives to help stimulate purchases.  However, it so far hasn’t been enough to help save the car industry from falling.

A new round of small business funding was passed by lawmakers, which will add another $484 billion to the bank accounts of small business owners.  This should help save a lot of jobs that would otherwise be lost, which is ultimately good news for the housing industry.  Speaking of housing, many don’t see the current environment impacting the housing industry.  However, I can’t imagine how the millions of job losses combined with the number of home buyers that no longer qualify for a loan based on tightening guidelines, wont impact home values.  It just doesn’t seem logical to assume our industry will be unharmed.  It seems far too early to make the bold statement that housing will be fine.