Four Mortgage REITs Collapse After Chaos Hit Markets for Residential & Commercial Mortgage-Backed Securities

In good Financial Crisis manner, stuff blows up despite the Fed’s effort to stem the chaos. Now hoping for taxpayer bailouts.

By Wolf Richter for WOLF STREET:

Mortgage REIT # 4 so far: This afternoon, March 24, MFA Financial announced that it had received “an unusually high number of margin calls from financing counterparties,” and that by the close of business on Monday, it couldn’t meet those margin calls.

Its shares (MFA) had started out the day in the positive at just under $3 and then plunged 87% during the day, to $0.36. On February 20, before the market chaos started, shares were still over $8 a share. MFA Financial blamed the repo-market where it “had experienced higher funding costs,” and the mortgage market turmoil triggered by COVID-19.

The business model of a mortgage REIT is to buy long-term residential and/or commercial mortgage-backed securities and leverage them up by borrowing short-term, including in the repo market if they can, while posting the RMBS or CMBS as collateral. A mortgage REIT makes money off the spread between the borrowing rates and the yields of the mortgage bonds, and they multiply their profits through leverage.

During the Good Times, it was like free money, and the mortgage REITs paid big-fat yields. But suddenly, the Good Times were up.

Turmoil hit the $16 trillion markets for mortgage debts, including residential and commercial mortgage-backed securities that everyone apparently was trying to unload, and their prices dropped, and therefore collateral values dropped, and financing counterparties sent out margin calls to get more cash or collateral to make up for the dropping collateral values. And then all heck broke loose.

And MFA Financial said:

On March 23, 2020, the Company notified its financing counterparties that it does not expect to be in a position to fund the anticipated volume of future margin calls under its financing arrangements in the near term as a result of market disruptions created by the COVID-19 pandemic.

If MFA fails to meet the margin calls, the financing counterparties can take ownership of the securities that secured the margin loan. The company is now trying to get its financing counterparties to enter into forbearance agreements, where the counterparties would refrain from exercising their rights and remedies they have in case of default, but it could not “predict” whether these talks would succeed.

Mortgage REIT #3: This morning, it was mortgage REIT Investco Mortgage Capital that issued an announcement that it had failed to meet margin calls on Monday, blaming “the turmoil in the financial markets resulting from the global pandemic of the COVID-19 virus.”

The announcement caused the already beaten down shares of Investco Mortgage Capital [IVR] to crash another 53% to $2.52. Back on February 20, they were still over $18. Investco Mortgage Capital added:

Through Friday, March 20, 2020, the Company had timely met all margin calls received. However, on Monday afternoon, March 23, 2020, the Company notified its financing counterparties that it was not in a position to fund the margin calls that it received on March 23, 2020, and that the Company did not expect to be in a position to fund the anticipated volume of future margin calls under its financing arrangements in the near term as a result of market disruptions created by the COVID-19 pandemic.

It said it is trying to get the counterparties to enter into a forbearance agreement and not take ownership of the securities that back the margin loans.  And “to preserve liquidity,” it said it would also “delay” paying the already announced dividends on its common stock, and on its three series of preferred stock.

Mortgage REIT # 2: On Monday, AG Mortgage Investment Trust, announced that it had not been able to meet margin calls “as a result of market disruptions created by the COVID-19 pandemic.” Shares [MITT] plunged another 24% today, to $2.14, having collapsed from over $16 on February 20.

“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,” it said

It was able to meet margin calls until Friday March 20, when it “missed the wire deadline” and notified the financing counterparties that it would fulfill the margin calls on Monday March 23 but would not be able to meet the anticipated future margin calls.

AG Mortgage said that it’s trying to get the financing counterparties to enter into a forbearance agreement and not take ownership of its securities that back the margin loans.

Mortgage REIT #1 to pop: On Monday, TPG RE Finance Trust — sponsored by private-equity giant TPG which had spun it off in an IPO in 2017 — announced that it had still been able to meet margin calls by posting cash collateral, but “if the requirements to post additional cash collateral continue to be material,” there is “no certainty” it would be able to meet future margin calls. To preserve liquidity, it would “delay” paying its previously announced dividend.

TPG RE’s shares [TRTX] plunged 30% on Monday and 13% on Tuesday to $4.30 and are down nearly 80% from last glory-day February 20.

“The Company is engaging in active discussions with its lenders and other potential sources of financing, but it cannot predict whether it will be able to agree to terms with such parties on an expedited basis,” it said.

And it’s going for a government bailout, it said: “The Company is also monitoring the potential availability of government programs.” Taxpayer to the fore.

Indirectly via its Special Purpose Vehicles and its Primary Dealers, the Fed can buy even old bicycles, as long as taxpayers take the losses. Read... What Are All the Fed’s Corporate & Investor Bailout Programs and SPVs? Here’s the Whole Shitload of Them

Enjoy reading WOLF STREET and want to support it? You can donate. I appreciate it immensely. Click on the beer and iced-tea mug to find out how:

Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.

  187 comments for “Four Mortgage REITs Collapse After Chaos Hit Markets for Residential & Commercial Mortgage-Backed Securities

  1. KPL says:

    The American ducks are all lined up and ready for their Thanksgiving day!

    • raxadian says:

      But shouldn’t they be turkeys then?

    • ng says:

      Trumponomics in action

    • Shiloh1 says:

      There used to be a street gang in Chicago who never used guns for the robberies. Instead they would go into a Walgreens, convenience store, etc. with small coolers. Inside the coolers were snakes. They would put the snakes on the floors, counters and shelves then rob the place while the customers and staff were going crazy. They may have just used grasssnakes with a couple of mean bull snakes thrown in, but in the end it didn’t matter, may as well been king cobras.

      Don’t look now America, but your country has just been looted.

  2. joe saba says:

    Really just need to let businesses fail
    in 120 days or so we can then pick up pieces
    I’m all for NEW OWNERS that have responsible policies

    • lenert says:

      Families are already failing. 2.5M new claims this week? To paraphrase this website “and these were the good times.”

    • MC01 says:

      The big problem is this: in 120 days of lockdown you won’t have anybody able to pick up the pieces. That’s why China was so anxious to reopen her economy with what many considered excessive haste and why there are the first signs of unease in Italy.

      Much more critically we need a “new normal” plan: China already had it at the height of the crisis. All we have in the West is the usual fare seemingly designed to inflate a bubble for a couple of years… but what good is a bubble is most businesses have now a negative cashflow? What good is a bubble if consumers cannot spend because they are stuck at home with no earnings and delivery services collapsed?

      The businesses that pay mortgages packaged in those REIT are now cashflow negative, and in most of the West they are waiting for a reply from the government, just to have a fighting chance. Instead they get threats of even more stringent lockdown measures (perhaps we’ll brick up doors and windows next so people cannot escape?) and no clear answers about stuff such as car leases, loans etc.
      While I try to keep a positive attitude, this is preposterous and a complete leadership failure.
      While people are still behaving admirably, governments should remember that people stuck at home with nothing do may start doing crazy things, such as think for themselves. ;-)

      • Dave says:

        These are strange and dangerous times, I do not think the citizenry of this country is down for another bail out of wall st and disaster capitalism for the masses like happened in the financial crash 0f 2008.

        • Joe in LA says:

          Too late. Working Americans are incapable of thinking along lines of class solidarity, so they get beaten harder and harder. Will those beatings eventually generate class solidarity? I doubt it.

          Warren Buffet was spot on this: “There is a class war in America, and my class has won.” America will gradually just look more and more like Brazil.

          The illusion of choice will be maintained though: Trump or Biden. Pick your corporatists and then go home.

        • Shiloh1 says:

          @Joe in LA, yes this proves that team D and team R are on the same team, like fake wrestling.

          Kinda ironic that former fake wrestler Jesse Ventura would not go for the taxpayer subsidies for all of the new sports stadiums in MN which were built after he was out.

        • Dan Romig says:

          The Wilfs basically split the cost with the Metroplitan Stadium Commission, Minneapolis and Minnesota, but they laid out no cash.

          Between seat licenses, a loan from the NFL that is set aside after twenty years if the team is still owned by the same brothers and doesn’t move – free money, eh?, naming rights from US Bank, and a few bonds issued, it added up to their costs.

          And by the way, the value of the Minnesota Vikings went from $1.6 billion to $2.2 billion the day the first game was played at the stadium.

          Oh you betcha, that was a sweet deal, now don’t ya know.

      • Lance Manly says:

        In this case the REITs are just leeches doing an arbitrage between the long term securities and short term borrowing. They produce no value, so there is nothing that needs to be picked up.

        • nick kelly says:

          Agree. I thought REITs owned RE directly.
          Silly me.

        • 0disseus says:

          m-REITs vs REITs | Wolf, please considering the add of a bit of explanation on the difference. I think it would help the general public.

        • Wolf Richter says:

          Yes, confusing. I should have done that before.

          A classic Real Estate Investment Trust holds properties that it tries to lease out to renters. It makes money off the difference between rent payments and the costs associated with those properties, including funding costs. This type of REIT is essentially a publicly traded landlord. Some of them own tens of thousands of homes and employ lots of people. They also use leverage. But rather than getting a mortgage on each house, they usually borrow long-term at the institutional level, using their portfolio of properties as collateral – in other words, the collateral is actual real estate. Some of them are now getting funded by selling asset-backed securities backed by rent payments.

          A Mortgage REIT doesn’t own any real estate. It owns mortgages, mostly in form of RMBS or CMBS. It makes money off the spread between their borrowing costs (usually short term, such as in the repo market where rates are lowest) and the yield of the MBS (long-term) in their portfolio. And they put up their MBS as collateral. In terms of staff, these mortgage REITs are usually small.

      • timbers says:

        Fear no, MC01, for our enlightened leaders are seeing the light and responding:

        “Coronavirus: Denver mayor forced to reverse lockdown of alcohol and marijuana shops following panic buying – Independent”

        • WES says:

          Timbers: Up here in Ontariob, alcohol and pot are deemed essential services! Government needs the tax revenue!

      • Stephen says:

        Each day, I am wondering when the people will come to their senses and see that a nationwide lockdown is THE worst thing a nation in financial stress can do. Btw, for those of you want your policy made on the basis of ‘science’, read a book that I was required to read in 9th grade science in 1973. It’s called ‘The Microbe Hunters’. I don’t remember the author. There is a section on the book on Louis Pasteur, a French scientist. Pasteur understood that combating microbes (including virus), it was necessary to deny the microbe the ‘fertile terrain’ to grow, in simple terms, have sufficient good gut bacteria to deny microbes an entry. I will not go into this ad nauseum, but you get the gist. Thinking that we can all live in a bubble is stupid and dangerous and will destroy the very foundation of the economy we have built. I don’t have much to say about the ponzi economy of REITS, but if you destroy the mainstreet economy, we will eventually go into a revolution. I am staggered by the craziest and recklessness our ‘leaders’ are displaying!

        • timbers says:

          I agree with you, Stephen

          . I think our leaders are panicking, in part because they care more about headlines that make the stocks go up rather than good policy. And they have ignored good public healthcare policy for so many decades, they literally have no clue what it might mean.

          South Korea has restricted large gatherings but bars and cafes remain open.

          Taiwan learned from SARS and spent public funds on a public healthcare system to respond to situation like this. Yet even now until just recently, our leaders cutting public healthcare and agencies that are supposed to respond to this.

          I am seeing screens put up in grocery stores, banks, etc. We know certain groups have enormously higher rates of vulnerability to Covid.

          Measure could be made more targeted and less sweeping.

        • DJ says:

          Stephen, please have a basic understanding of science before you post something so stupid. “in simple terms, have sufficient good gut bacteria to deny microbes an entry.” You are clueless. Please stop… what you are suggesting will lead to millions of deaths, certainly people you know, your friends, your family. The only people being reckless are people like you who will continue to deny real science and play a huge part in the actual collapse of the economy. Stay home and shut up, at this point I’m not sure how you made it this far

        • Unamused says:

          read a book that I was required to read in 9th grade science in 1973. It’s called ‘The Microbe Hunters’. I don’t remember the author.

          Paul de Kruif. Two copies on one of the shelves, 1926. It’s never been out of print. The germ theory of disease originated with Thucydides, came up in Islam in the Middle Ages, but wasn’t generally accepted in Europe until the 20th century, and there is still an active denialist movement. Joseph Lister doesn’t get a chapter, but you still have Listerine.

          I am staggered by the craziest and recklessness our ‘leaders’ are displaying!

          Just don’t be surprised. The ambitious have been notorious for exploiting ignorance and superstition in all of history, an art form long before it became a political science.

        • MC01 says:

          Stephen: we have been in lockdown seemingly forever here in Italy with no end in sight. It’s something I do not wish upon anybody: at least in jail you can consult with your lawyer and attend Mass and if you behave well you may even have some visits.
          I am not opposed to a lockdown to help save people: everybody has to do his/her part and you would be surprised to see how so many people are ready to it without coercion.

          But things have to be thought throughly: for example the Italian government has cut off absolutely critical companies (think those making respirator parts and air liquefaction plants producing liquid oxygen for healthcare facilities) from their vendors and contractors. Result: after weeks of running at full capacity spare parts are running out and production is falling as stuff breaks down and those who can repair it cannot move from home or have no access to parts. I hope the appeal in the media and to politicians will change things.

          And I’ll keep typing this until my fingers bleed: where’s our “new normal” plan? For example what is being done to increase the production of facemasks and nitrile gloves which will be absolutely necessary for a few months and to make them available to everybody? I’ll tell you: nothing. But perhaps we’ll tighten the lockdown a bit more. That will show “them”!
          Fernanda Lira was right to sing a song about this kind of stuff called “Failed System”.

          We still have the phone and Internet (until stuff will break down) and can work safely from home: give us a plan and we’ll work on it. At least it will kill some time: even if you are allowed to work business has slowed to the merest trickle.
          I am so bored I have been thinking to start learning Sanskrit: at least I’ll be able to comunicate with Buddha Sakyamuni when I’ll die of boredom and old age and plead not to reincarnate me once again.

        • economicminor says:

          A system that wants to only be based upon profits and exponential growth starts to ignore risks.. All risks.

          When you ignore risks they tend to build. Minsky did a good job of explaining how and why this happens.

          In a system that wasn’t leveraged at all, this virus and its shut down wouldn’t be a big deal what so ever. In our overly leveraged high risk environment there is no room for such a disruption.

          The actual assets are not going to go away. So the real wealth isn’t going to go away.. The fear that is being bred is about the ownership changing hands and the phantom wealth being diminished by what is called deflation.

          Ignoring the virus is pretty much the same as ignoring the huge amount of leverage built into our economic system. Ignoring it will not make it go away.

        • Stephen says:

          To DJ – I am perfectly healthy. Let’s agree to meet on this forum in a year, and I will tell you how healthy I am …. and my family. I see the picture here. You don’t. You don’t see that national lockdowns are not necessary AND your insistence that people cannot manage their own health my knowledge of gut bacteria and mitochondria function are beyond ridiculous. I have over 60 years of life to validate that I am in charge of my own health. I don’t go to doctors unless I truly have an emergency, and then, would be happy to. The sheep have bought into the idea that we need to listen to ‘experts’ and the ‘experts’ will manage our lives for us. Well, I say BS on that. I am the expert on MY life. Yours-you determine that. I am comfortable. I always work at home anyway, but I know my comfort is based on the millions of people who need to work at a work place everyday. Destroying the economy will not help!

        • IdahoPotato says:


          There is a small technical glitch with your Sanskrit-learning aspirations. It is a fine, rich language but Buddha conversed and taught in Pali.

        • Cas127 says:

          Well said, Economic Minor

        • upwising says:

          Sanskrit is cool but I am working on ʻŌlelo Hawaiʻi (Hawai’ian).

          And in deference to “Wheel of Misfortune” Vanna (Vapid) White…
          “CAN I BUY A CONSONANT — or TWO ? ”

        • Joe says:

          Well when the virus is actually radiation Pasteur had no idea what to do.

          20000 Satellites were launched in November. 5G is more than just those boxes.

      • Sit23 says:

        What is wrong with borrowing from your bank to buy your house, and they use your interest to run themselves. As you pay back capital, they relend this to others. Note there are no layers after layers of financial entities gouging everybody. These REITs seem like classic parasites; unnecessary, unwanted, with hides like rhinoceroses to deflect the totally accurate and justified abuse they get. Then it turns out that as usual, seven financial layers up the chain is the poor sods pension fund financing everyone. Let’s see if the right people get sorted by the govt.

  3. DR DOOM says:

    Fed better trot out a 150 year bond. The fed will have to leverage a couple of tax payer life times to pay for this transfer of wealth. They ain’t gettin’ my mug. Gonna bury it with me to warn the poor saps in the future when they dig me up for the gold in my snout.

  4. Shiloh1 says:

    It was all good fun reading the article until I got to the word “bailout”. Another sickening death blow to The Republic.

    Didn’t one of the TPG execs get caught on the college admissions bribery scandal? Salt of the earth.

    • Nat says:

      I need to stop thinking about the fact that many of these people would be net + billions to society if they were just to be put through a wood chipper and turned into fertilizer for crops. Now that I have begun to understand how much society would benefit from that action it takes all my self control not to rent a wood chipper and Fargo our way back to sustainability.

      • Thomas Roberts says:

        I approve this comment.

        Although, I know that over on the Keiser Report, the currently pushed for method, that would be more likely to be accepted, would be the guillotine.

      • Shiloh1 says:

        Feet first

      • Calvin Tompkins says:

        Don’t forget the children and grandchildren … gotta completely dry up that foul gene pool.

  5. A says:

    Hey wolf – new article idea for you.

    I remember reading the 2018 tax law didn’t affect the airlines because the airlines effectively haven’t had to pay federal income taxes for a decade because of “capital loss carryover” from their post-911 bankruptcies. And now they’re going to get $37 billion in free money from the government courtesy of Nancy Pelosi’s new bill.

    Must be a hell of a thing to not pay taxes and then get billions of taxpayer money.

    • chillbro says:

      While buying 44b in shares. Although I am pretty sure the airline bail out is a the Right thing here tho

      • S says:

        They would be bailing out bad behavior, again. They would be bailing out shareholders, not fair! Let them go bankrupt first, wipe out shareholders and executive stock options, then bail them out.

        • Aye! People need to remember that “bankrupt” is not the same as “out of business”. And even if they did Pan Am, who cares? Now’s a great time to transfer their assets to someone who can run a business. Nobody can fly now anyway.

          BUT… who CAN run a business sensibly in the reality we’ve been living through. What’s a allowed for 1 business is required for all competitors.

    • Wolf Richter says:

      What I want to know is where I can sign up for that program?

    • MC01 says:

      You want to know how deep well connected airlines are in cahoots with governments? Fine.
      Following a request by the US and other governments, United Airlines will operate daily flights from Newark, Houston and San Francisco to several foreign countries such as Brazil, Germany and Japan after all other United international flights are halted on Friday. These flights will operate on a “no matter what” principle, just like Alitalia has been operating many daily internal flights in Italy and to destinations such as Brussels, Frankfurt and Heathrow and Lufthansa guarantees daily flights between Germany and Italy.

      While I understand fully well the need for these flights, how were these airlines chosen? To the best of my knowledge there was no tether: they were just picked at random… or behind closed doors. Since these flights operate at minimal capacity, well well below breakeven, it means the airlines are either getting money or other favors.
      All other airlines are left holding the bag… and hoping to get the crimbs of the bailouts… provided our governments don’t strangle us to save us all.

      • California Bob says:

        I’ll take a SWAG: the Powers That Be own massive quantities of UAL stock (which they weren’t able to dump in time, even with inside info)?

    • harrykoala says:

      Why is this Nancy Pelosi’s bill? Trump says the airlines are the #1 bailout priority. Just call it for what it is, a government bailout.

  6. Lt says:

    Anecdotal but I think relevant. In my city, I just heard today that most of the IHOPs are closing and not reopening. I think about 10 stores. I would guess that they were already under stress before the virus came along. Just one example of how we will have certain businesses (and jobs) that will not come back from this.

    I imagine this same scenario is occurring all over the country — some businesses that were already on the edge just use this opportunity to throw in the towel. Commercial real estate owners and developers and lenders have got to be in panic mode.

    • Suzie Alcatrez says:

      All the restaurants in my neck of the woods were ordered closed or pickup only last week.

    • Short_Seller_Blake says:

      Good info to pass. IHOP to me was always just a better version of Denny’s.

      • cas127 says:


        Something no one ever thought pre-lockdown.

        Something everyone will think post-lockdown.

    • Shiloh1 says:

      Local IHOPs were always reliable sponsors to 5K charity races around these parts.

    • Robert says:

      The good news is their sites are being bought up by a venture capitalist whose business model is a series of drive-up psychiatry clinics. It is to be called International House of Fruitcakes.

  7. GotCollateral says:

    AAA to toilet paper in no time! Get to work Jerome! More trash for you via Black Rock to soak up!

    • MM says:

      To be fair, toilet paper is a valuable commodity these days.

      • RD Blakeslee says:

        Not to us anal retentive hillbillies. We just use a corncob once a year.

    • Bobby Dale says:

      Naw, the Fed outsourced this sector to Black Rock

    • Matt Belben says:

      Well I for one will not mourn the demise of our “AAA”-rated companies and am excited for our glorious future toilet-paper-based economy. Maybe THIS will finally be what Makes America Great Again! Imagine everyone getting good jobs right out of high school at the massive toilet paper factory right down the street.

      • Cas127 says:

        “our glorious future toilet-paper-based economy”

        Ironically, TP would actually be a utility based money superior to the USD.

        A new world is being born from the ashes of the old…behold! TP backed fiat, the Brownback!

  8. TownNorth says:

    “…it would also “delay” paying the already announced dividends on its common stock, and on its three series of preferred stock.” That’ll be a long wait. Seems no one considered the risk of the down side of the peak.

    I don’t know why, but I was thinking about the S&L crisis today, and I came across this quaint phrase in a news article:

    “A more aggressive response followed the savings and loan crisis of the ’80s and early ’90s, when more than 1,000 bankers were convicted by the Justice Department.”

    • Wolf Richter says:

      “….more than 1,000 bankers were convicted by the Justice Department.”

      That sounds so quaint today, like, what world were they living in back then?

      • Counterpointer says:

        Wolf – clearly a leading question to which you know the answer. See Bill Black, one of the bank examiners at the time, and his book “The Best Way to Rob a Bank is to Own One”.

        Strangely there seems to have been some sort of aberrant “rule of law” thing going on.

        The past is a foreign country, they do things differently there.


  9. VeryAmused says:

    So the virus made a 3 million dollar 900 square foot condo and 10,000 dollar a month rent for a luxury bagel shop in a mega city unreasonable?

    This virus is a dick.

  10. two beers says:

    More bailouts for billionaires, coming up!

  11. Short_Seller_Blake says:

    How safe is SPG? MAC looks like they’re about to go bye bye. Wonder what happens to SPG in this “bailout.”

  12. Joe says:

    Wolff! How could this be true? $16 trillion? WTF

    • Wolf Richter says:

      $9 trillion in agency MBS mostly residential, plus $1.4 trillion non-agency MBS, plus CMBS that are not agency, plus assorted other residential and commercial mortgage debts.

  13. Michael Engel says:

    1) Glorious empires tranquility and stability consume money.
    2) In the 1920’s, the back country guppy Fed banks parked their money in NY Fed Strong hand, while the stoic man at the helm kept social
    3) NY Fed Strong financed the short term wall street speculation games and the overextended British empire. GB ruled SA gold mines, the Arabian desert, Iraq and Isfahan, the crown jewel of West Bengal Ausie & NZ.
    4) During the 1929/ 32 plunge, all assets including gold turned into dust.
    5) US treasury finance Keynesian projects with debt.
    6) The DOW bounced from 41.22 on June 1932 to 194.40 on Mar 1937
    propelled by debt.
    7) Gold was king until FDR devalued debt in his pijama.
    8) The DOW was in a relay station from 1937 to 1949, with a spring
    in 1942 and an upthrust in 1946.
    9) Gold was fixed at 35 for the next 30 years until Johnson & Nixon binge spending broke the bank.

  14. Iamafan says:

    I’d like to know who are on the other side of these m-REITs that levered up.
    I have read the many articles talking about this MBS blowup in Bloomberg and WSJ but they were all above my paygrade.
    Wish I could find a simpler explanation to this great story.

    • Berri says:

      Sounds like it’s the banks. Quote: Royal Bank of Canada (NYSE:RY) is trying to unload more than $600M of commercial MBS seized from clients unable to meet margin calls, reports the WSJ.

  15. backwardsevolution says:

    “The Fed has gone beyond providing liquidity to the market, and it is now providing solvency to players, and there’s a big difference.”

    • Robert says:

      Alexander Hamilton was the force behind the creation of the first U.S. central bank, and what he and his cronies did is illustrative of what is probably happening at this moment: they bought up, for pennies on the dollar Continental debt paper and then introduced legislation making the debt 100% good and payable in gold.* The trillions being provided interest free to the banks that own the Fed sounds like the fuel to buy up one after another failing companies, and is nothing short of criminal.
      * funny how Lin-Manuel Miranda managed to overlook this bit of history(or, for that matter that Hamilton did not believe in either the Bill of Rights or democracy)

  16. No Expert says:

    “The business model of a mortgage REIT is to buy long-term residential and/or commercial mortgage-backed securities and leverage them up by borrowing short-term, including in the repo market if they can, while posting the RMBS or CMBS as collateral. A mortgage REIT makes money off the spread between the borrowing rates and the yields of the mortgage bonds, and they multiply their profits through leverage.”

    Lol wat? Coal mine – mines coal, land lord – owns house, Car maker – … you know? If it takes a paragraph to explain what a business is – its not a real thing. For fun read the quoted paragraph double time in monotone. * no disrespect to author/great site man

    • SocalJim says:

      Wow … you never heard of this? I thought earning spread through short term financing is common knowledge. This spread game is used by many, or perhaps most, fixed income funds in the country. Early in my wall street career, I sat on a financing desk and made sure every security was either repoed or in a sell/buyback agreement, then I made sure that cash was invested. Furthermore, I kept rolling the agreements forward. Read the perspectus of your mutual fund or ETF.

    • Wolf Richter says:

      No Expert,

      Mortgage REITs are just part of the financialized economy, living off the spread between borrowing costs and yields while taking big risks to do so. They don’t do anything real in terms of goods and services, and the real world would likely not miss them if they all folded.

  17. Michael Engel says:

    10) The Dow had an impressive bull run from 6,500 in 2009 to 29,500 in 2020, or = 23,000 pts.
    11) The current 11,500 pts plunge to 18,000 is a 50% correction.
    12) The DOW can easily reach a new all time high, to > 37K.
    13) The DOW can spend a decade or two in a relay station, like the
    1937/ 49 box or 1966/ 1982 box, pumping inflation that will send the DOW to much higher altitude.
    14) A gloom & doom scenario : a plunge to below 12,000 – 13,000, similar to 1929/1932 bubble collapse.

    • VintageVNvet says:

      not to toot too loudly, yet,,, but I asked Wolf last week if, instead of his DOW 20000 hat that he was going to look for,
      he might find one for DOW 12000
      looks even more likely we will get there sooner rather than later, eh

      • Clete says:

        Commuting into DC 25 years ago, I often saw a green Jaguar with the license plate “DOW 6K” — I wonder if he still has it and will be right again.

        • RD Blakeslee says:

          Fifty years ago, while commuting to DC , I passed a guy in a Morgan (open sports car, body made of wood, old-time carriage “technology”).

          He wore a tweed sports jacket, a vest and a British-style flat hat.

          And his license plate? Normal.

        • Lisa_Hooker says:

          Late 70’s early 80’s parking beneath my Dr’s office the car next to me was a Rolls with the plate “BUY OIL.”

  18. Jeff Relf says:

    Call the fire brigade; illiquid,
    over-leveraged REITs are burning-down again.

    New safety standards are in order, obviously.

  19. Michael Engel says:

    1) Scenarios 12) and 13) will lead to higher oil & gold.
    2) US might impose an oil embargo on SKA and Russia, with
    an option of ME oil assets destruction.
    3) Gold will salivate.
    4) Scenario 14) doom and gloom for stocks, oil and gold.

  20. Petunia says:

    As I commented previously, I noticed many tenant occupied listings on Zillow, in the past few weeks. My impression was that the REITs were dumping properties, I was probably right. The tenant occupied listings caught my attention because they were priced below comparable listings. I checked back on a listing and found it had sold below the already lower asking price. I would calculate the discount at under 20% altogether.

    I also heard the buying program at Zillow, and other similar programs, had stopped buying properties for resale. All of this points to lower RE prices in the future.

    • Wolf Richter says:


      “the buying program at Zillow, and other similar programs, had stopped buying properties for resale.”

      Yes, the entire “iBuyer” business model is now on hold. All companies that were into it have stopped buying homes. All of them have so far lost money on this thing. I don’t know if they will revive it after the crisis passes, or if the iBuyer idea is now dead for good. We’ll have to wait and see.

      Financially, the way it was being conducted, it never made sense, even in a hot market. Now they’re facing a down market with collapsing volume where it is easy to buy and very difficult to sell, and while they hold the property, its price could drop further.

      I think the iBuyer program is doomed in a down-market. It can only survive, if at all, in a hot market.

    • Shiloh1 says:

      Steve Eisman (The Big Short guy played by Steve Carrell in the movie) had a YT segment a few months ago about how the Zillow house purchase part of their business model would lead to disaster.

  21. Iamafan says:

    According to FT:

    Mortgage Reits own roughly $500bn in mortgage-backed bonds, or about 5 per cent of the market, according to Nomura.

    The mortgage Reits fund themselves by pledging bonds in return for cash in the short-term funding, or “repo”, markets, and have assets valued at as much as 10 times their common equity. The high leverage allows them to pay dividends well in excess of the yields on the bonds they buy. Because of their legal structure, the Reits are obliged to pay out substantially all of their earnings to shareholders.

    The falling value of their mortgage bonds, driven down by the rush for cash and worries about defaults as the coronavirus leaves homeowners unemployed, has pushed the Reits past their leverage limits, forcing them to sell bonds into an already weak market.

    The banks the Reits depend on for financing are increasingly hesitant to accept mortgage bonds as collateral — and are pressing the Reits with margin calls, threatening to liquidate the bonds if the Reits do not post more cash. “The dealers want cash, they don’t want collateral,”. “They are saying, ‘I have no exit for these loans — I’m going to protect myself’.”

    So there’s the problem. Repo collateral ain’t money good anymore. Cash is definitely not trash. I’m beginning to understand this now.

    • TrojanMan says:

      Cash is trash because whoever suffers the default will be looking for a bailout from the Fed, which the Fed will happily give by purchasing the non-performing collateral at a fantasy price. Now the lender or the REIT is saved but the money supply increases. Presumably the Fed incinerates whatever payments it receives from the assets to the extent they perform. However, if the assets are shit, and we are talking about $16 trillion, the Fed has to seriously start worrying about nationalizing the economy or trigging massive inflation accompanied by pitchforks. They can only spin it as ensuring liquidity for Main Street for so long. We know that is BS. If they are so willing to lend, them start doing it directly with real underwriting and let these leverage game businesses fail. F this shit.

    • Wes says:

      If the collateral isn’t marketable then it isn’t cash. Don’t worry, the Fed will find a way to buy it and park it somewhere until the market comes back….

      Why doesn’t the Fed just buy our mortgages, give us cash, and let us buy them back one day when the market comes back?

      • Iamafan says:

        That’s exactly what the Fed is doing for many kinds of securities, not just MBS, but also for othe ABS, corporate bond, commercial paper, etc. Essentially they have provided cash even for Treasuries.

  22. John says:

    Thanks! Stay safe people! Twenty five year old on respirator and induced coma in Bangor Me.

  23. Michael Engel says:

    The covid-19 compounding force in NYC is amazing .
    With such an explosive growth it will become a bomb that bomb itself.

  24. Paulo says:

    A cautionary tale:

    My ex best friend, (as we’ve had a disagreement or two the past few days) had his money in these vehicles.

    To quote him from 6 months ago, “Met with our new financial advisor last week. He usually only takes on new clients with a million or more to invest, but he is making an exception in our case”. (So, they took the 300-400K from the sale of a home and Market gains and liquidated their other stagnant investments and….) As they say, “The rest is history”.

    People actually fall for this spiel. (“In your case I’ll make an exception”).

    So, in the real world a small time investor would kick the tires and buy into some local promising properties with low low debt to return, and build up a nest egg. But this in financialized gold rush world…..

    I’m a builder by trade and passion. It starts with an idea and cash for materials, and one step after another with the skills to make it happen a structure or product is made. It has value to someone, that is why it exists. It isn’t a scheme. There is no rush. It takes a lifetime to build some modest security actually building products people value. But these days everyone wants to win at the table; win a fortune and be the smug smart guy; vacation while your money magically blossoms into real wealth, then sit back and plan more trips.

    It doesn’t work that way.

    And if/when the currency is debased, say by massive debt creation to cover an emergency pandemic just to use an implausible example :-), but let’s just pretend shall we?, something unforeseen like this can happen and will happen. And just maybe, one day the currency loses its value and attraction…..

    • IslandTeal says:

      Paulo .. don’t leave us hanging like this. What happened to the friend ?

    • doug says:

      Sounds like a case of ‘And its gone….’

      Paulo, those financial predators are smooth. Don’t be too harsh on long term friend. I think you are savvy enough to never say ‘I told you so’ to him. I hope he doesn’t remain ‘ex’ ….
      good luck to all.

    • RD Blakeslee says:

      ” … skills to make it happen a structure or product is made. It has value to someone, that is why it exists. It isn’t a scheme. There is no rush. It takes a lifetime to build some modest security actually building products people value.”

      As you are probably tired of hearing by now, Paulo et al: Even more primordial (and satisfying, in an existential way): Build your own house.

      Live in it

      It was never intended to be sold to somebody else.

    • cas127 says:


      “I’m a builder by trade and passion. It starts with an idea and cash for materials, and one step after another with the skills to make it happen a structure or product is made. It has value to someone, that is why it exists.”

      Kudos…unfortunately, one look at the Builder 100 list from Builder Magazine will tell you that the vast majority of large residential builders have grabbed that easy ZIRP money and hugely inflated the median price of their products.

      There are very, very few in the Top 100 that appear to remember how to build an even remotely affordable product (sans ZIRP).

      Paulo, it would be a real service if you could link to the best source materials you know of for affordable homebuilding practices…because it looks like it is a nearly lost art after 20 years if housing inflation.

      There are tips here and there on the internet…but even Habitat for Humanity does not widely share its secrets apparently…some of it is free labor of course…but even their uneducated labor has to be very efficiently instructed.

    • Harvey Mushman says:

      Last August I was invited to a free dinner at a local restaurant. The only catch was I had to listen to the sales pitch of a small money management company. So I went. It was interesting. They’re main tactic is to invest in REITs for commercial real estate. It sounded pretty good. The commercial real estate that they invest in is for assisted living facilities etc. A growing market (considering all the aging baby boomers). I thought about it but decided not jump in.

      Now I’m happy I didn’t invest. Maybe their REITs are ok… but maybe not?

  25. Michael Engel says:

    1) Western Canadian Select is the price of Canadian oil.
    2) WCS – WTI = (-) 15.65.
    3) WTI is very low, but Canadian oil is even lower.
    4) When US shale will go BK, WCS – WTI will be > zero.

  26. Beardawg says:

    One of these REITs is seeking bailout money for improper leveraging? How does such a bailout start at the beginning of the meat grinder and come out as a nothing burger to be consumed John Q Public and provide no sustenance? I would love to have WOLF do an article on how these various bailouts historically, and presently, will likely resolve in the consumer economy.

  27. David Hall says:

    Delusions of reopening America in time for Easter. Critical failures at multiple levels, finger pointing and conceited pride.

    • Cas127 says:

      Half the country knows when Trump engages in puffery…the other half pretends it doesn’t.

  28. Anon1970 says:

    I remember mortgage REITs going bust at a rapid pace in 1974-75. Lots of little people lost a lot of money thanks to bad advice from their brokers at the wire houses. Most of the wire houses are gone or have been taken over by banks.

  29. Crush the Peasants! says:

    Market is reflating. Quicker reaction to stabilizing the market than to coronavirus. Hmmm…

    Dow bottom at around 18,000? It’s not the end of the world.

    • Unamused says:

      Dow bottom at around 18,000? It’s not the end of the world.

      You’ve been assured that Americans are going to start committing suicide by the thousands unless older people sacrifice themselves on the altar of capitalism. If that’s a policy statement and not just bluster, your problems haven’t even begun.

      Cov-19 won’t touch corporatists. Professional courtesy.

      You now have a centrally-planned economy openly controlled by the parasite class. The more the economy is damaged, the bigger the bailouts will get. Rinse and repeat. I’m going to miss you guys.

    • GrassRanger says:

      Looking at the charts of crashes in the past, there is nearly always a substantial bounce after the first fall. Then follows the real decline to the bottom over a longer period of time . Are things different this time? Will all the Fed largess turn this collapse around? I think we are in a world of **it but maybe it is different this time!

      • VeryAmused says:

        “I think we are in a world of **it but maybe it is different this time!”

        Given the kitchen sink bathroom foundation the Fed has thrown at the problem I am having a creeping belief that maybe this time is different.

        But the VAST majority of me still believes we are in a world of **it.

    • economicminor says:

      We haven’t even gotten to the defaults yet! The tide is still going out. We are just starting to see who was swimming naked.

      Market rallies on hope trying to sucker in the foolish but there is just so much leveraged debt out there that was already a problem starting last September when the FED started its extra ordinary repos.

      Between the leveraged loans, the REITs, the failing commercial real estate, the sub prime auto loans, the lies at the rating agencies, all those people who worked at the Unicorns who will not be making their payments on anything, the federal deficits/debts…. I could go on but there is a mess of stupid loans that won’t be paid on for months or longer. For Many this is it. They will have to default. No other option.

      This will be nothing more than a Dead Cat Bouncing… This is history repeating itself because people don’t want to ever learn from the past! Especially financiers who benefit from selling you one of their products which aren’t products, only someone’s risky deal that they want to make a profit on.

      • Counterpointer says:

        The default pressure will overwhelm the stopgap measures.

        – companies will default
        – asset classes will default
        – sectors will default
        – cities will default
        – States will default
        – countries will default

        The logic of cascading systemic failure through a tightly-coupled financial complex is compelling. How and when it will happen is up for grabs. Whether it will happen is not imho.


        • Cas127 says:

          “The logic of cascading systemic failure through a tightly-coupled financial complex is compelling.”


          Interlocking debt leads to cascade failure and ZIRP cultivates more and more debt in the service of political wishcasting and phonied up economic resurrections.

          Until the underlying economic weaknesses are addressed (excessive de-industrialization, lack of diversification in import relationships, a toxic political class making up both parties, etc.) nothing will get better.

          We will just get more bubble busts with shittier recoveries in between.

          We are on number 3 in 20 yrs.

  30. J Vermeer says:

    TAXPAYER BAILOUTS for REITS? You gotta be kidding! Everybody knows those are the most treacherous instruments out there, my dad was always
    losing his shirt on them but couldn’t leave em alone, was too addicted for some reason. Easy gains without actually buying and holding any investment real estate, which in California could have REALLY made him rich. But no.
    I wouldn’t touch a REIT with a ten-foot pole! You take a chance on something like that you take the consequences, good or bad. None of this bailout crap. For the ball-less there’s always the SPDR ETF.

  31. Iamafan says:

    Apparently many of the m-reits that failed have also non-agency MBS which the Fed does NOT take.

    When you do a repo, it’s the VALUE of your collateral (with an appropriate haircut) that counts. When the value of the collateral moves on you (in this case, goes South), lenders demand you put up more collateral or pledge CASH.

    This is Lehman all over again as collateral is trash.

    • Yancey Ward says:

      Yes, the REITS that look like they are going to go under had 50% or less in agency MBS. There may be some value in the prefferred shares, but I doubt there is much. I am actually going through them all this morning trying to find out if there is any value at all in the ones that got crushed yesterday. It doesn’t look like it, at least not right now. Maybe, if they get some forbearance from the creditors, but I don’t see why they wouldn’t just demand the collateral right now.

      • Iamafan says:

        Repo forbearance. Never heard of that before.

        The term margin call used here is not exactly the same as buying stocks on margin. Nevertheless, if you can’t come up with the cash, your broker will sell your position.

        With repo, if the collateral falls in value, a margin call can take effect to ask the borrower to amend the securities offered. Since they cannot come up with more collateral and the lender does not care to take their existing collateral the next repo will likely fail.

      • Counterpointer says:

        Long time no see, Yancey. All good?

        • Yancey Ward says:

          Yes. I lurk this site- rarely comment.

        • Yancey Ward says:

          You will have to remind me where we knew each other online. The nom de plume rings a bell, but I don’t remember from where.

        • Yancey Ward says:

          Calculated Risk, right?

        • Wolf Richter says:

          I wonder how many Calculated Riskers are hanging out here now. I know of a bunch of them, including Thomas Stone.

        • Tom Pfotzer says:

          Speaking of CR, wonder what Bill thinks of the current situation.

          He was always reluctant to acknowledge the underlying structural problems. He chose to report on the effects of things, rather than the cause of things.

          I like CR’s tone. It’s calm and measured. But if you keep ignoring the elephants in the room, you’re going to get sat upon.

          Bill now has some re-thinking to do.

    • Petunia says:

      It’s worse than Lehman now, incomes are lower, savings are lower, the people have more experience with the financial system.

      • Cas127 says:

        “the people have more experience with the financial system.”

        Fool me once…

        People do learn…that is why the bubbles between the busts keep getting smaller…but the busts keep digging deep and deeper into saved wealth.

  32. Yancey Ward says:

    These are companies that shouldn’t be bailed out. I don’t really see the social value in what they produce. Now, they might get bailed out since their stock is owned by a lot of pensioners directly and indirectly for the dividends. I own a small common position in AGNC and NLY, and I do own some preferred shares in IVR and NLY, but I can write those off without a sweat.

    • Iamafan says:

      Even if the Fed buys their securities, they valuate their purchases at market value plus a haircut. They won’t pay PAR. They offer liquidity and not a profit guarantee. These m-reits are toast.

    • Shiloh1 says:

      Will AIG go under AGAIN, this time solely due to their wonderful underwriting units? No big whale at a London derivatives desk to blame it on this time.

  33. Yancey Ward says:

    I feel for the people who put large chunks of their retirement funds into the REITS for the dividends. You can find them posting on investment blog comments sections. However, my sympathy is limited.

    • Cas127 says:

      Yeah, somehow the civilians keep thinking that dividends are like bonds and that bonds are not like junk…

  34. KGC says:

    The real estate bubble never went away with the last crisis. It was propped up by the FEC and the IMF, and every other bank. They could not depreciate those holdings to fair market value without going under, and for the past 10 years this has been ignored. There are hundreds of thousands of pieces of real estate sitting empty because they are priced at speculation values and mortgaged at those prices. Until the banks are forced to actually sell them at true value the use of those speculation prices will continue to prop up failing banks and businesses, and it’s not politically acceptable for those to fail. Italy and Spain are obvious examples of this, but too many other countries have the same problem (including USA).

    REITs may fail, but their holdings will still be held with false value.

    • Cas127 says:

      “There are hundreds of thousands of pieces of real estate sitting empty because they are priced at speculation values and mortgaged at those prices.”

      Interesting point…I wonder if there are any statistical sources that could confirm vacancy.

      The dynamic makes sense, but you would have thought there would have been more screaming about it as rents greatly escalated, if true.

      I’m not sure a foreclosing creditor would not have rented for some cashflow.

  35. Bart says:


    This $2T stimulus, will the Government sell treasuries to raise this money and if not, how will they get it?

    • Wolf Richter says:


      Yes big question: who will buy those Treasuries? You’re now looking at increasing the national debt by over $3 trillion in a 12-month period. Who will buy all this? Well, the Fed?

      • Bart says:

        Thanks Wolf,

        And the Fed will buy treasuries and pay with them with what? The Fed literally prints money out of thin air? At this point, something had to be done, lots of people hurting and soon to be hungry but down the road, this thing has ramifications. Maybe the Fed doesn’t run out of bullets (printing) but at some point, all this shooting overheats the barrel. Stay safe,

        • Cas127 says:


          “The Fed literally prints money out of thin air?”

          Actually, yes.

          Tragically, though, the supply of real world goods amazingly remains unaltered so the ratio between the two (known as inflation) goes up…people may recognize it from their friendly monthly rent bill…

        • John V says:

          Bart, you and I, the taxpayers will pay for all this even as we’re ripped off of the interest on our savings. And from my perspective, only the FAANGS made any money for investors.
          How much was Amazon a share and how many working guys
          & gals could even afford to buy it now?

        • Tom Pfotzer says:

          Actually, there are few more moving parts.

          Money is getting created, and it’s also being destroyed.

          The reason for the monster helicopter money is that velocity is plummeting (number of times a buck is spent in a year) and debt (money) is being destroyed as the debtor companies/schemes fail.

          Why does money die? Business failures (write-it-off, Bob!) and the mis-allocations which led to the failures (let’s build some more paper-mache houses and Tanks-which-are-torched-in-Afghanistan and Jets-that-don’t-fly and jobs-that-create-no-value)…which are funded with debt.

          The big problem with debt is that it’s not used to create wealth (houses that last 1000 years, for ex).

          When you have bubbles and crashes, think “mis-allocation”. It’s the core causative agent.

      • Iamafan says:

        Sounds like the question was like – does the bear s**t in the woods?

        Seriously, people remember the story of the Treasury minting a coin worth trillions that the Fed will buy?

      • Cas127 says:

        At ZIRP or less…who else but the Fed?

        That’s where baby inflation comes from (which grows up to be monster inflation).

        But at least the DC political class will have bought another few yrs (months?) of survival and isn’t that what it is all really about?

  36. NewOnThisBlock says:

    I apologize for an off-topic post, but does anyone here understand why we are having a massive rally with no change in underlying conditions? Something something federal bailout, but it still doesn’t make sense to me.

    • Wolf Richter says:


      “Nothing Goes to Heck in a Straight Line” is the Dictum on our WOLF STREET beer mugs and bumper stickers for a reason. Have a look at them:

      • NewOnThisBlock says:

        Thanks. So you believe this rally is meaningless? If it’s a bounce it’s quite the bounce, more like a tennis ball then a dead skunk. (I will not use the term relating to little cute kitty things)

      • A Citizen says:

        That’s how a pitch is supposed to be delivered, people!

        • RD Blakeslee says:

          Well, I dunno …

          I’ve heard of heating it and applying it with feathers to a miscreant and riding him out of town ob a rail.

      • Tom Pfotzer says:

        It bears remembering that back in 2008, everyone thought “no way we can reflate out of this one!!” “Big reset now!”.

        Didn’t happen then. May not happen now.

        Coordinated central bank behavior is very, very powerful. Several trillion is a lot of buying-power unleashed at once, and it’s not just the U.S. that’s spending that amount of its citizens’ future economic effort.

        It might reflate, folks. And we may come to appreciate the value of a successful re-flation, as did the people who lived through the Depression.

        Till someone thinks up a way to design a balanced economy that’s run by crazy humans…this is all we’ve got. Better hope it lasts, because … what else is there?

    • Timothy Hagios says:

      To paraphrase Ron Paul: if it doesn’t make any sense to you, you understand it just fine.

    • VeryAmused says:

      WARNING: Beware of bull traps.

    • Counterpointer says:

      They are playing the bounce and recoup game. It’ll fizzle out once the sentiment that DC can actually get something done fades, along with the sugar high of liquidity, then we go back to scratching our heads about the underlying and conclude something like “holy hell, this is really bad, sell with both hands Jim”.

    • Andrei says:

      to NewOnThisBlock:

      “why we are having a massive rally with no change in underlying conditions?”

      This is just how markets work :)

      It’s not the news that drive them, but the collective psychology. Nobody knows what the “right” price is. More people think the price is cheap, than otherwise – you have a rally. And the other way around. This is why there are always zigzags in price action.

  37. Wisdom Seeker says:

    Somewhat off-topic, but does anyone understand why the House today didn’t vote on the emergency bill?

    • I emailed all my elected officials and told them no slush fund, maybe some other people got the same idea.

    • cesqy says:

      I think the House stimulus vote tomorrow is trying to offset the terrible, horrendous employment report tomorrow. Timing is important for $2T of credit/debt. The delay by Congress to act in the GFC is now a faint memory.

      • cas127 says:


        Kudos…people forget the actual history of Fall 2008…wikipedia should help with this sort of thing…

      • 728huey says:

        Actually, I believe the jobs report will actually look fairly decent but already be old news, as it will report numbers for February which will not include much of the chaos created by the coronavirus. The infections didn’t really begin to take place in the USA until the end of the month and on the West Coast. It was also around that time that the first wave of panic buying/hoarding began to occur at Costco and Walmart, and people were still ridiculing those hoarders at the time. It wasn’t until a week later that major companies were starting to make their employees work from home, and my employer had its first coronavirus meeting on March 6th informing us about their plans to have us work from home as soon as we were given company computers. We got those computers on March 16th, which was the same day our governor ordered all bars and dine-in restaurants to close and schools to be closed through March 31st, but three days later he made the shelter in place order through April 7th, though it appears this will be extended at the rates cases are spreading.

    • RD Blakeslee says:

      Pardon me – I’m guessing in the light of history:

      Usually such delays are because the majority leader is not sure of enough votes to avoid an embarrassing defeat. Armtwisting going on, I think.

      • RD Blakeslee says:

        Amplification: The house members are scattered and don’t want to return to DC. They could pass the legislation without being present and without a quorum, but that would take unanimous consent. I suspect Polosi doesn’t have it.

  38. My friend did a REFI on her long time home, using an online lender. Is this going to put her mortgage in jeopardy?

    • Iamafan says:

      No. Her mortgage was resold and bundled to an MBS. It is the servicer and the buyers of the MBS who are now in trouble.

  39. Iamafan says:

    Repo this morning.

    Treasury 0.000
    Mortgage Backed 10.900

    100% of repo is MBS. Nice.

    • Wolf Richter says:


      The RMBS and CMBS market is a mess. And think of it this way: Mortgage lenders, with the support of the GSE, have already said they will give forbearance. The three biggest mortgage lenders here in CA are now offering 3 months forbearance. There are MBS behind these mortgages that suddenly won’t pay interest and principal, and that are also not considered in default. This is rippling through to CMBS as well. Suddenly, none of the equations these RMBS and CMBS investors relied on are true anymore. Who’d want to buy something like that unless there’s a huge premium on it for taking this risk. It’s a total mess.

      • Iamafan says:


        Nothing has been said about the SERVICERS of MBS. They cannot be excused from paying the MBS holders. If nothing is coming in for 3 months then what is going to be paid to MBS holders? Are they gonna be in default then? Most of these I understand are set up in the Caymans. True clusterf***.

        • In a traditional mortgage (company) default the paper gets kicked upstairs, strong hands, that didn’t happen in GFC. I tell her doesn’t matter if you can make the payments, the new owners may want different terms, (like cash or a higher rate of interest). They kept the mortgage business from unwinding in GFC but this time around it may play to Hoyle. The Fed wants the charters to backstop the shadows, which is another political litmus. Even Buffett is swimming naked? (Quicken)

        • Berri says:

          This aspect, I am keenly interested. If Servicers (big banks like JPMorgan, BofA, WellsF) are first in line to be liable for borrowers forbearance, then aren’t these mREITS and the MBS they hold protected against default as long as these banks have the cash sustaining power to fill in this temporary gap?

          I think servicers are first in line to guarantee payment even before the agency’s guarantee regarding agency MBS.

  40. jon says:

    Both (classical) Sanskrit and Pali are derived from Vedic Sanskrit, and one could say that Pali is like a simplified version of Sanskrit. (What this means will become clearer below.)

  41. Iamafan says:

    Tuesday, March 24, 2020 QE4++ Fed purchases:

    12:00 – 12:20 pm: Treasury Coupons 2.25 to 4.5 year sector, for around $17 billion but only $13.799 were bought.
    12:50 – 1:10 pm: TIPS for around $7 billion each but only $4.154 were bought.

    Dealers are running out of some “former” repo collateral to get rid of and now SELL to the Fed. Or the quality of the stuff has deteriorated too much.

    • economicminor says:

      Wondering how to bail out a system who’s collateral is in knife fall / waterfall? Will the fed just buy the trash or is this the end of the game?

      I can’t blame the administration for wishing the US go back to work and ignore the virus. They were dealt a loosing hand and there really isn’t anything left to do but fold. They just don’t want to admit it YET!

      • Iamafan says:

        Interesting question.

        But it is the Fed NOT TAKING IN some Treasuries.
        Why? Are some Treasuries not worth taking?

        Treasury Coupons 2.25 to 4.5 year sector, for around $17 billion planned. But only $13.799 billion of the $26.291B submitter were accepted. Was the collateral lousy?

        • We are getting back to the collateral issue, the primary mover in the first REPO moment. My first thought was the collateral is no good. Those holding long duration paper when rates start to rise, you get it. Fed moved to T Bills, more cash-like, makes sense, but some sniff of rotting money. The dollar goes parabolic, the purchasing power has dropped further, and now stocks are aligning because money is disappearing, and disappearing money which is losing value implies a broken system has been fixed. The people buying Treasury ETFs (they are under distribution so the weak hands) are magical thinkers. Yes Treasuries are safe, even if the collateral is bad. Liquidity is collateral. Only Fed heads think that way. The FED is dead.

  42. qt says:

    But everyone here want to know: What DID JIM CRAMER SAID?

  43. Iamafan says:

    Reverse Repo this noon was 97.411 billion. One of the largest I’ve ever seen.

  44. Jack Murphy says:

    These stocks are flying today… up 40% -> 50% at time of posting this comment

    • VeryAmused says:

      Up 40% to 50%$ today, insolvent and shuttered tomorrow.

      Be very careful out there.

    • Wolf Richter says:

      Yeah, I think the biggest winner was MFA, which went from $0.36 to $1.14 (+215%). I remember Sears Holdings doing the same.

      • 0disseus says:

        Interesting to dig into the holdings of relevant ETFs:


  45. Michael Gaff says:

    I have no sympathy for the thousands of people who have bought into the Covid-19 panic. If the collateralized mortgage-backed “investors” are hurt, I don’t care. I am watching with a certain sense of, Schadenfreud (sic?). I cannot equate the deaths of a few thousand people in a world of more than 7,000,0000,000, in a few months.
    This may be the financial reset that will save our fiat system.
    I think the fiat monetary system, including all of the religious crap, is great.

  46. LouisDeLaSmart says:

    Triliontol, 2T

    Main active ingredient is $$$. Each tablet contains exactly 2 trilions of $. In one package there is 1 tablet. Drug is appled rectaly to the state and respectfull citizens. No consent required.

    –Indications for use–
    In what case would it be appropriate to use the drug ? The instruction recommends using it in order to correct the following conditions:
    – Over dose of QE
    – Lack of leadership/courage
    – Lack fo ideas/solutions
    – Accute ovefinancialization
    – Hyperstupidia
    – Inflamation of Housing Markets

    –Side effects–
    Sometimes, certain side effects may develop, among which are the following:
    – economic depression
    – delusional euforia
    – liquidity itching
    – low income headache
    – agrandizing hallucinations
    – manufacturing muscle weakness
    – incoherent policies
    – delayed mental reactions
    – fluctuations of the libido (foreign policy)

  47. WES says:

    REITs by their very defination, are Zombies!

    If you live in a REIT, you would never even notice their disappearance!

  48. historicus says:

    I maintain that every financial problem we have can be traced to central bank interventions and fake interest rates.
    Anyone care to disagree?

    • Lisa_Hooker says:

      Well, there is the time I spent too much. But I learned.

    • Tom Pfotzer says:

      I disagree. Our society is drunk on debt and consumption, top-to-bottom.

      We loudly criticize “elites” for enabling us to be like them. And we do, gladly, and when it inevitably busts, we blame them – to no avail, of course, because they know us better than we do.

      It takes effort to achieve sitational awareness, and more effort to adapt to a position of safety and self-determination.

      That effort has not been made.

      The composition of Congress is Exhibit A reflection of who and what we are.

      Present company excepted, of course, and that is not polite-speak.

      • RD Blakeslee says:

        Present company plus one.

        But that’s for people who are more or less libertarian. Most ARE collectively, de facto controlled in their personal lives by the zeitgeist.

        • sierra7 says:

          RD Blakeslee eta al:
          Makes three. And I’m NOT a libertarian!
          Just an old soul who has seen lots of water take out many bridges!

  49. Unamused says:

    Anyone care to disagree?

    I disagree. CBs get loads of help from their colleagues in the Financial Industrial Complex. TBTF ‘investment’ banks. Phony credit ratings by phony agencies. Insurance companies, especially in health care. Financial engineers of all kinds. Assorted corporatists and other rentiers. Make your own list.

    CBs mostly create the appearance of cleaning up the problems made by all the other financiers in the food chain when they get ahead of themselves. They don’t make the problems. They make them worse.

Comments are closed.