Forbearances Go Down, Restrictions Go Up

Loan servicers are happy as clams this morning after Black Knight (a mortgage data analysis company) claimed that near 500,000 loans ended their forbearance plans last week. This is the largest decrease we have seen since the start of COVID. While the total number of active deferral plans decreased to where it was at the end of April, we still have over 4 million borrowers (around 7.8% of mortgages) deferring or are on a plan to make a portion of their mortgage payment. This is great news for the market in general; however, we will pay close attention to decreases as many small businesses close their doors for the second time.

A consequence of loans being in forbearance for as long as they have is that the mortgage market credit supply is declining. This reduction in supply is making it tougher for consumers to qualify for a loan. The Mortgage Banker Association (MBA) uses a metric called the Mortgage Availability Index to measure accessibility of a mortgage loan, which they claimed dropped 3.3% in June.

Stocks fell yesterday but are rebounding this morning as they form a “Golden Cross”. This happens when the markets 50 day moving average crosses the 200 day, indicating upward potential in the market.

The bond market continues to flourish as the Fed buys up bonds. This will be reflected in better mortgage backed security pricing.

We hold a floating bias if you are able to closely watch the market.