Where We Are Now: April 14, 2020
Work From Home — Day 30
What’s Tougher, The Start or The Finish?
This morning’s Where We Are Now is from the desk of Brent Thomson, COO.
Much of my life has been about finding solace in extreme conditions. As Mark indicated yesterday, I did compete in the Mt. Everest Marathon in 2011. The next year I drove 250 horses across 500 miles on the Mongolian high desert. Many of you are competitors and you know the training requirements involved for these events.
I don’t know what’s been harder: getting to the starting line or the finish line. They both take preparation and commitment for two of the most difficult things in life — start and finish. Preparation in life as in competitive sports is #1. When I was getting ready for any endurance event the first step in my planning was to re-create the environment I would be in. For Everest I made several trips to Glacier National Park, hiked to the Sperry Glacier at 8,000 feet, camped there for 3 nights, mapping out three 13-mile runs up to 11,000 feet, so each day I could run 13 miles out and 13 back to get the 26 miles at altitude. Granted, it was nowhere near the 17,000 feet of the marathon, but it did prepare me for extreme discomfort.
Day 30. I remember WFH Days 1 to 10 having no idea we would still be WFH for what is now one month. For me, the physical and mental preparation necessary to stay in balance under the new limitations placed on our daily routines was critical. I went back to creating the “environment” I was called to participate in. I tackled getting creative around exercise and “Marie Kondo’ing” my home office with the same focus I used to map out long runs, only no GPS required this time. If I have a shorter workout I make sure it’s harder. I recently read about a man who climbed the height of Mt. Everest on his staircase, 41,000 steps! I’m clear about the people and things that give me joy, and treat them as “essential services.” I’m inspired.
With no clear end date in sight yet, we have come to understand that the whole world hit PAUSE and in many ways was brought to its knees. Yet, because of this, we have seen nature return. Pollution has been reduced around the world as we stay out of our cars, in India the Himalayas are visible for the first time in 30 years — remarkable. This is just one of the silver linings I hope continue to put a feeling of wonder back in our lives as we move through this.
Yes, there are serious economic repercussions from this that will affect everyone around the world. We have been there before, albeit not in our lifetime, and we have come back better, stronger, and more united in our recovery. Humans are a community not meant to be defined by loss, but by how we recover. We’ve carried the light for each other during this dark time and we won’t stop when this is over.
We had no notice on the WFH start and no visibility to the finish. So, we are now not only training, but competing simultaneously.
I am so proud of this team!
This is Where We Are Now.
Work From Home — Day 30 — Closing Bell
Mortgage Mess, Forbearance & the Fed
The 2008 to 2009 Great Recession was led by real estate, largely due to subprime mortgages. Thereafter, real estate was very slow to recover. We really didn’t find our footing until late 2011.
Before the Coronavirus crisis, the banks were exceptionally well-capitalized, the mortgage markets were fluid and relatively conservative, and our California real estate market posted the strongest Q1 in my memory. 2020 was on track for an exceptional year.
In fact, the most recent CoreLogic Loan Performance Insight Report quoted the fifth consecutive month that no states posted year-over-year increases in delinquency rates. In fact, the January 2020 delinquency dropped 0.5 percent from January 2019.
What’s happening now has not been seen before. No surprise, right? The broad statements from various press podiums about mortgage forbearance on the surface are fantastic for those families that qualify and need the relief. The implications to you and your clients in purchase money loans are concerning. Remember, we have three basic channels of mortgage products in the US:
- Federally guaranteed mortgages like Fannie, Freddie & Ginnie.
- Large depository banks like Wells, Chase, BofA, Union Bank and First Republic.
- Non-banks who “make a market” and then securitize/sell loans to the secondary mortgage market (MBS).
The mortgage forbearance programs have eliminated channel 3, except for Federally guaranteed loans. Channel 2, “portfolio lenders,” have significantly tightened the “credit box,” including: deposits on-hand, debt to income ratios, LTVs, and FICO scores. In addition, what lender wants to generate a new purchase loan, only to have a borrower elect forbearance shortly after closing.
In conversations with industry experts, there is growing expectation that the Fed will ultimately need to step in and absorb the implications of the mortgage forbearance programs. This may include buying all the mortgages currently in forbearance as well as the new originations.
You might be asking, what is my action item? The source of funding on mortgages is mission critical. Ultimately, who is the lender? Not the originator, but the ultimate lender. If it’s not from channel 1 or 3, until the Fed steps in to cash the check it promised from the press podium, funding may be questionable.
Once this short-term dynamic passes, all three mortgage channels should be healthy, motivated and responsive to borrowers.
In today’s Path Forward, we updated our forward-looking Curve chart. It is my hope that real estate may lead our recovery from this crisis.
This is Where We Are Now.
Mark A McLaughlin