“Mortgage Forbearance” is Suddenly Hot, Hits Shadow Banks, which Clamor for Bailout from Taxpayers and the Fed

“The mortgage market has more risk than previously acknowledged.”

By Wolf Richter for WOLF STREET.

The Government-Sponsored Enterprises Fannie Mae and Freddie Mac, and the government agency Ginnie Mae, which guarantee $7.5 trillion in mortgages and turn them into mortgage-backed securities (MBS), have rolled out a wide-ranging support package for homeowners with mortgages that they guarantee, in order to keep the mortgage market from collapsing.

One of those measures is their support for “mortgage forbearance.” And homeowners are now picking up on it, according to the Mortgage Bankers Association. But it has thrown the entire mortgage market, including MBS, and every business in it, upside down.

Generally, in a mortgage forbearance agreement, the lender agrees not to exercise its legal right to foreclose on the delinquent mortgage, and the borrower agrees to a mortgage plan that will require the borrower to eventually become current again. These are not free gifts or grants, but deferrals.

The stimulus package, signed into law on March 27, mandates that all borrowers with government-backed mortgages be allowed to delay for at least 90 days their monthly mortgage payments.

The plan offered by Fannie Mae and Freddie Mac and similar plans offered by Ginnie Mae, the FHA, and the VA, go a lot further:

“Homeowners impacted by this national emergency are eligible for a forbearance plan to reduce or suspend their mortgage payments for up to 12 months.”

During that forbearance period of up to 12 months, homeowners won’t have to make mortgage payments. They will not incur late fees. They will not be reported to the credit bureaus, so this won’t hit their credit score. And after forbearance, the mortgage servicer “must work” with them “on a permanent plan to help maintain or reduce monthly payment amounts as necessary, including a loan modification.”

This is a sweet deal for homeowners. Yes, the deferred payments will have to be rolled into the rest of the mortgage, but it will be a modified mortgage, perhaps with stretched terms and lower rates, etc.

And this is just the beginning.

Homeowners have been flooding the call centers of mortgage servicers to get one of those forbearance agreements. To track this new trend, the Mortgage Bankers Association came up with its new weekly report on forbearance. It details some of the first effects of these policies, based on 22.4 million mortgages serviced, representing about 45% of the total mortgage servicing market.

Even the forbearance report is brand new. There had never been a need to track this on a weekly basis. Now there is – with forbearance becoming part of the new normal. It found:

  • Between the week of March 2 and the week of March 16, forbearance requests grew by 1,270%.
  • Between the week of March 16 and the week of March 30, forbearance requests grew by another 1,896%.
  • Forbearance requests already exceed 2 million.
  • Average hold times at mortgage servicers’ call centers jumped from less than 2 minutes three weeks earlier, to 17.5 minutes.
  • Average call abandonment rates jumped from 5% three weeks earlier, to 25%.
  • Total loans in forbearance multiplied by a factor of over 10, from 0.25% of all loans on March 2 to 2.66% of all loans on April 1.
  • Loans in forbearance at Ginnie Mae reached 4.25% of all loans.

An estimated 2 million borrowers already missed mortgage payments by the end of March, Mark Calabria, director of the Federal Housing Finance Agency (FHFA), which oversees Fannie and Freddie, told CNBC.

Some estimates – and they could be purposefully exaggerated to trigger a bailout for the nonbank mortgage servicers – say that forbearance will reach 25% of government-backed mortgages.

But when homeowners don’t have to make payments for up to a year, it throws the entire mortgage market upside down. And one of the side-effects is that it puts mortgage servicers into a liquidity crunch.

Mortgage servicers – banks and nonbanks – collect payments from homeowners and pass them on to investors who hold mortgage-backed securities (MBS) issued by Ginnie, Fannie, Freddie, and the like.

Mortgage servicers have a contractual obligation to continue to make the payments to MBS holders even if homeowners become delinquent. Servicers will be reimbursed by the government-backed entities, but that can take several months. So they’re temporarily on the hook but will eventually get their money back.

This is not a problem normally, when just a few mortgages become delinquent. But homeowners are now in a mad scramble to get these forbearance deals and suspend mortgage payments. And a significant portion of the mortgages these servicers handle could eventually be under a forbearance agreement.

Banks have large cash reserves – the “reserves” that they keep around or deposit at the Fed. In addition, the have liquidity support from the Fed and can borrow at the discount window at 0.25%. So they’re not threatened by forbearance agreements.

But nonbanks (or “shadow banks”) have neither. They’re not regulated by the Fed and other banking regulators, and they don’t have the capital requirements and reserve requirements that banks have. And now they don’t have the reserves to get through this crisis.

How did they get there?

The largest mortgage lender and servicer in the US used to be Wells Fargo, after it had acquired Wachovia (deal closed in January 2009), which was collapsing, and regulators had told it to find a buyer. Wachovia was the fourth-largest bank holding company in the US at the time. This misbegotten deal doubled the size of Wells Fargo and made it the largest mortgage lender in the US. But the losses from the Wachovia mortgage book were huge during the housing bust.

Other banks went through a similar program. For example, in January 2008, and predating the Wells Fargo deal, Bank of America was arm-twisted by regulators into acquiring Countrywide Financial, which was collapsing. Countrywide was the largest mortgage lender in the US in 2006. This deal turned BofA into the largest mortgage lender, until Wells Fargo dethroned it with the Wachovia deal. BofA also ended up with huge losses and endless legal problems stemming from Countrywide.

Reeling from these types of misadventures, banks pulled back from mortgage lending coming out of the Financial Crisis.

And nonbanks took over. A gaggle of them collapsed during the Financial Crisis and weren’t bailed out. But the survivors got aggressive. They didn’t have bank regulators breathing down their necks, and they could do what they wanted. Now the largest mortgage servicer is Quicken Loans. And there’s a slew of other big ones.

Now Bailout City.

These nonbank servicers are now squealing and lobbying to high heaven for a bailout from Ginnie, Fannie, and Freddie. Ginnie, which is a US government agency, already caved and announced that it would set up a liquidity facility for servicers of its loans. Fannie and Freddie, which strive to become independent companies, have not yet caved.

This squealing about a liquidity crunch is just “spin,” said the FHFA’s Mark Calabria. In the interview, he told the Wall Street Journal that he doesn’t see it as the role of Fannie and Freddie, which the FHFA overseas, to help the mortgage servicers.

“I’ve seen zero [evidence] to suggest that there’s a systemic crisis across the nonbank servicers,” he said. “If this goes on for a year, maybe. But I think the frustration here is a lot of just misrepresentation.”

The role of Fannie and Freddie in a downturn is “not to bail out people in the industry,” he said. “Their countercyclical role is to provide mortgage credit, and I see no evidence that that is not happening.”

“I’m trying to preserve their safety and soundness,” he said. “They simply don’t have the capital” to bail out the shadow banks.

He also said that Fannie and Freddie may have to transfer mortgage servicing to bigger servicers if smaller servicers don’t have the cash reserves to fund the forbearances for the time-span needed.

His refusal to bail out the shadow banks was instantly attacked by the Mortgage Bankers’ Association, which in the same breath then asked for a bailout of the shadow banks by the Fed and the taxpayer.

“We also strongly disagree with his characterization of the customer experience as it relates to the size of a mortgage servicer,” the MBA’s statement said.

“The Director’s [Mark Calabria] unwillingness to offer support from Fannie Mae and Freddie Mac for the very firms that he and Congress asked to execute his agency’s forbearance plan only reinforces why the Federal Reserve and U.S. Treasury must create a financing program to help residential and commercial/multifamily mortgage servicers who will have to provide unprecedented levels of mortgage payment forbearance,” it said.

This type of Fed liquidity facility would be similar to other Special Purpose Vehicles (SPVs) that the Fed in conjunction with the Treasury Department has already set up to bail out a garden variety of companies and markets. The Fed, which is in total bailout mood, could easily do that.

Fed Chair Jerome Powell already indicated yesterday in a Webinar at Brookings that the Fed was looking at it. If you squeal loud enough, you’ll get a Fed bailout.

What does this blowup show?

“The mortgage market has more risk than previously acknowledged,” said the American Enterprise Institute, which among other things covers the housing market and housing policy, in its presentation on the housing bailout and the liquidity challenges resulting from it. It was particularly pointing at the FHA’s large book of high-risk, low-down-payment loans, lending targeted to first-time buyers, investor loans, and refinance loans.

“The federal government’s dominance in the under-capitalized US housing finance system means many of these stresses will land on Treasury, Ginnie, the Fed, & FHFA’s doorsteps,” it said.

Regular folks need not apply. Read... QE-4 Cut in Half this Week. Fed’s Helicopter Money for Wall Street & the Wealthy Hits $1.8 Trillion in 4 Weeks

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  234 comments for ““Mortgage Forbearance” is Suddenly Hot, Hits Shadow Banks, which Clamor for Bailout from Taxpayers and the Fed

  1. Cobalt Programmer says:

    We have seen the same movie like ten years before around 2008? That movie was pretty bad.
    I heard about our treasury sec, that he made awful lot of money by loans to home mortgages, foreclosure and claiming insurance, betting against the MBS stocks, then asking homeowners to default loans and evicting them, then purchase all the homes at cheaper price, selling them at a profit. Indy mac or something?

    Then long story short, he married that [young] golden hair women, took her on a government plane to see the total solar eclipse from the skies…he also said the FED’s golden bars were indeed safe. That doesn’t matter anyway.

    Here I am, with morals and ethics learned in a hard way with nothing to declare…

    • mike says:

      This coronavirus is something of a godsend for the “Federal” Reserve, bank-cartel banksters. Mortgage backed securities (“MBS”) were big anvils around their necks, which were going to sink their banks sooner or later.

      Wall Street banks, financiers and their cronies had huge MBS holdings and the real estate market was already seizing up in late 2019. Real estate in too many markets were in huge bubbles and the MBS were not truly collectible in full.

      The Federal Reserve already had to bail out the banksters by buying out their MBS holdings in November 2019 aside from their separate, 2019, gigantic, repo market bailouts to the banksters.

      Thus, now the bank cartel that deceitfully calls itself the “Federal” Reserve managed to use the excuse of this coronavirus depression to buy unlimited quantities of this toxic, overvalued asset class at full price to protect its banksters from suffering these long standing losses. Thus, these toxic, overvalued assets will be bought at the imaginary prices to which the bubbles of 2000 to 2019 raised them.

      The US tax payers will ultimately suffer the loss, because the “Fed” bankster directors will now use the coronavirus opportunity to use US legal tender to bail out its banksters from their severely devalued MBS holdings at the maximum prices possible to help their cronies.

      It is a good year to be a bankster; they can pretend to be the good guys while the funnel more billions to cronies. Of course, it always is good to be bankster. Even the coronavirus may give them professional courtesy: one parasite to another.

      No doubt, the bankster directors at the Federal Reserve will have future plumb jobs when they leave it and will have their future employers always rescued by the Federal bankster Reserve AGAIN and AGAIN

      • timbers says:

        Yep. Just go a Google or Wikipedia on Darth Powell. There are $billions$ in his future if he wishes it to be so, and it exactly equals bribery… except in the world of those Ivy League educated mostest smartyest folks on the Supreme Court who legalized fraud & bribery if government officials.

    • Frederick says:

      Gold plated tungsten bars you mean, right? And yeah Munchkin is a doofus no doubt and god help him with his fair haired “ friend “ he’s gonna need it

    • Anna says:

      Bingo!!!

  2. IdahoPotato says:

    Why are slumlord millionaires also exempt from makig federal mortgage payments?

    @Politico

    Jared Kushner’s family business could be a prime beneficiary of a provision in the federal recovery bill that allows owners of apartment buildings to freeze federal mortgage payments on low- and moderate-income properties.

    Kushner Companies, the real estate firm started in 1985 by Kushner’s father, Charles, controls thousands of low- and moderate-housing units across the country, some of which are funded through an $800 million federally backed loan the firm received in 2019.

  3. VintageVNvet says:

    ”An estimated 2 million borrowers already missed mortgage payments by the end of May, Mark Calabria, director of the Federal Housing Finance Agency (FHFA), which oversees Fannie and Freddie, told CNBC.”

    Think you mean March in the above sentence Wolf?

    ”This squealing about a liquidity crunch is just “spin,” said the FHFA’s Mark Calabria. In the interview, he told the Wall Street Journal that he doesn’t see it as the role of Fannie and Freddie, which the FHFA overseas, to help the mortgage servicers. ”
    Can’t we get FHFA to come back from overseas?
    Thanks for this explanation, I did get caught by both WF and BOA last time, but, ”never again.” Only cash buyer going forward.

    • David Hall says:

      Some rules have suspended renter evictions 30 – 90 days.

      7-8% of American jobs were in the food and beverage industry. States have closed restaurants, bars and coffee shops.

      India has a sixth of the world’s population. They extended their shutdown another two weeks.

    • Old-school says:

      I ate a lot of beans and potatoes and cornbread growing up so my parents could make the house payment. Twenty year mortgage, paid off in ten. We all shared one bathroom because that’s what what we could afford. They would have died if they missed a house payment.

  4. Portia says:

    Does anyone have an idea, how likely it would be for a foreclosure on a HELOC default, where there is no primary mortgage?

    • lenert says:

      Good question – copy that into google – some good answers. Maybe a pro will weigh in.

    • Clete says:

      The way I learned it: the HELOC is essentially the first mortgage if it’s the only lien on the property. So, yes, they probably would foreclose in that situation.

      • Clete says:

        To be more precise: they will foreclose if there’s any equity to be recovered. During the last crash, a lot of HELOC’s simply went unpaid because the house value dropped below the first mortgage balance and when the property was repossessed and sold, there simply wasn’t anything left for secondary lien holders. Does that make sense?

        • Portia says:

          That’s pretty much what I am getting. Thanks.

        • S says:

          As a former real estate banker, I have told my friends on their primary residence, either you leverage it to the sky or have no leverage at all.

          A loan to value of 50% is very dangerous because if you can’t service debt for whatever reason, your equity can be wiped out because of foreclosure, especially during a house market collapse where values are all over the place.

          IMHO, real estate is a demonstrated high-low game where a middle hand can become worthless.

      • Shiloh1 says:

        @S,

        George Gammon has recent YT video interview with Jason Hartman, that point is made/explained, just like you said.

    • Nicholas says:

      If you use a heloc for anything other than the purchase or refinance, you are liable. In other words (cash out): Heloc’s are “not” non-re recourse loans. The only way out is bk or pay off. You also can negotiate a payoff but will be like any other credit security.
      As for actually initiating the for closure; I don’t see why they couldn’t. They have a lien on the property.

    • Synergy says:

      In a liquidity crisis all bets are off. So it would be highly likely.

      Also those who flipped their real estate into an LLC with a traditional mortgage will also likely find themselves having to pay back their loan yesterday under the due on sale clause. When backs need their money they want it yesterday.

  5. Stan Sexton says:

    We in real estate were told that another 2008 could never happen because all buyers must now qualify by FICO scores. We have now learned that FICO scores are worthless when you have massive unemployment.

  6. 10Xtorpedo says:

    Wha’s the big deal. There won’t be any real estate crash. I read earlier that the FED will buy all the bad debt. keeping the rich rich and the young and poor.. fwcxked.

    Things never change. Some of us younger than 40… will be forever jacked, forget about my two kids 5 & 3.

    doomed

    • backwardsevolution says:

      10Xtorpedo – don’t lose hope, torpedo! I worry about my kids too.

      What people don’t realize is the harm they are doing to the younger generation. By purposely and intentionally not allowing these ridiculous bubbles to burst and deflate, the lives of the young, who are kept out of the market, are put on hold, stuck in limbo, and sometimes ruined. They just give up. This is very, very unfair.

      You worry about taking out a Heloc against the gains you’ve made, yet never worked for, and this guy works hard and can’t get ahead.

      Human nature? Nature? Nature was never so ugly.

      Take care, torpedo. This greed and criminality will come to an end, and I hope when it does people will look back in shame and never want to go there again.

      • Nick says:

        Prices in 2008-2009 were down 50% or more , it will probably happened again. I don’t know if people will have jobs to get a mortgage or banks will lend

        • Steve says:

          My prediction:
          When all said and done we’ll have close to 30M newly unemployed and lenders will stop lending. They got their money and will sit on it just like in 2009.

          They pick up a ton of cheap property to be rented out at high prices.

    • Beardawg says:

      10xTorpedo

      I indeed feel your sentiment RE the future for your children (my grandy is age 6). However, I am a private lender on single family homes (SFH) and there are thousands like me in the USA. We make our living on loan payments and we have no bailout. My (our) bad for not heeding the “drop key” mentality of able borrowers who walked from their mortgages because they could get away with it and receive only a credit ding.

      My point is that beyond “shadow banks,” there are private lenders and rental real estate owners, the vast majority who rely on rent or loan payments to survive. They (I) are wrongfully dumped into the “Big Boy Bailout” crowd when nothing could be farther from the truth.

      • MCH says:

        It’s a really good point Beardawg.

        I think what is systematically underestimated is the consequences of actions. If you’re a small time landlord owning a couple of properties, and suddenly you have to put up with a couple of months of no rent, well, that’s nice for the renters, but the landlord still has to make the mortgage payments.

        Let’s say we bail those guys out by forbearance, then the next problem kicks in, because the banks gets the buck passed to them, and so on. All the way up until the point where the taxpayers still have to bail out the banks, and by the way, it’s the same taxpayers (almost) that was supposed to be helped with the no eviction rules.

        The problem here is that there is no free lunch. C19 might suck, but right now, the problem is that the cure is gradually becoming worse than the disease. I read some comments by Michael Burry, and I think the longer things are shut down, the worse it gets.

        While I admire Newsom’s current work in trying to manage the crisis. I think the problem is going to hit CA very fast as the economic impact of this continues, and the longer we stay in this state, the worse it gets, if the shut down ends tomorrow, it won’t mean that the demand will come back a month from then. That’s going to take a while to build back up.

      • Bart says:

        Rent collectors are scum . Just look at Jared Kushner and family .

      • 911truther says:

        10X,

        I feel for you. But please consider my view. I am not a believer in the educational system, so I told both of my kids, 10 years ago, that instead of paying for college, I’d buy them each a middle class house, like mine.

        Back then, a middle class home in my area was ~$160,000. My promise, at the time, was about a $320,000 commitment. I don’t debt. My personal balance sheet has been solvent my entire life. So cheap interest rates are zero value to me.

        My commitment has now swelled to ~$700,000 and I am hoping and praying that this ridiculous, way-too-expensive housing market completely collapses.

        My first job out of college was with IBM. They paid me $10.90 per hour, with no health insurance, no pension. They called us new hires “supplemental”.

        Back then, a middle class home in my area was around $90,000. Today, that same middle class house is $350,000.

        Have starting wages for fresh out of college workers gone up by 4X since ‘94? Not at all, they’ve barely doubled.

        https://www.shrm.org/resourcesandtools/hr-topics/compensation/pages/average-starting-salary-for-recent-college-grads.aspx

        It’s time that we the people demand real money, a gold backed currency. This fiat bullsh** is just that: bullsh**

        Good luck to you.

    • Frederick says:

      But, but the FED bailed out the banks in 2008 and the housing market was in the tank until 2012 or later in many locales I think all you need in this fragile market is loss of confidence and it will be a bloodbath I just saw a 5000 sq ft house in Ct near NYC where the seller dropped the asking price from 759k to 559k in late March Panic is obviously setting in especially for people in over their heads ie high costs to maintain

      • Jon says:

        It takes just few homes in the neighborhood to drop the price then the comps take the price down for all the homes !

        • a reader says:

          If one thinks about it, this is not too different from the stock market, where the last transaction price somehow magically determines the current “value” of a corporation (even if just for a moment).

          The real estate market is a very-very slow motion version of the same.

    • VintageVNvet says:

      Similarly worried about my grands, 7-12, 10x,,, but just try to keep doing your best to teach them skills.
      Best of all skills is actually thinking, including analyzing.
      My best time with my kids was using every TV program to make them actually pay attention, and not just ”zombie” out in the delta brain slough; turn off the sound at every ad and make the kids answer questions about what ever was just shown, and keep escalating the density of the questions to make the kids THINK, etc., etc..
      Don’t let them watch any TV without an adult in the room, eh?
      Other than that, start teaching them basic math concepts and basic concepts of the scientific method ASAP, both of which are more or less intuitive to young children, usually drummed/dumbed out of them by the rigidity of ”school,” starting with the initial regimentation of staying in line, not talking out of turn, not asking questions, etc.
      The only good thing to be said of the oligarchy in USA is that it has been/is open to anyone, albeit there is lots of room to debate the personal characteristics needed.

      • cb says:

        Vintage said:

        1. “usually drummed/dumbed out of them by the rigidity of ”school,” starting with the initial regimentation of staying in line, not talking out of turn,”

        2. “The only good thing to be said of the oligarchy in USA is that it has been/is open to anyone”
        _____________________________________

        1. Yes, why demand or teach societal rules or norms?

        2. Sure,,,, and being well born or a sociopath has nothing to do with it

  7. Iamafan says:

    NRZ’s explanation is actually decent.

    MSRs and Servicer Advances
    In our view, the approximately $10 trillion mortgage servicing market presents a number of compelling investment opportunities. A mortgage servicing right (“MSR”) provides a mortgage servicer with the right to service a pool of mortgage loans in exchange for a fee.

    Approximately 74% of MSRs are currently owned by banks. We expect this number will continue to decline as banks face pressure to reduce their MSR exposure as a result of heightened capital reserve requirements under Basel III, regulatory scrutiny and a more challenging servicing environment. As banks continue to sell MSRs, there is an opportunity for entities such as New Residential to participate through co-investment in the corresponding Excess MSRs.
    An MSR is made up of two components: a basic fee and an Excess MSR. The basic fee is the amount of compensation for the performance of servicing duties, and the Excess MSR is the amount that exceeds the basic fee. As the owner of an Excess MSR, we collect monthly cash flows from the MSR, but do not assume any servicing duties, advance obligations or liabilities associated with the portfolios underlying our investment.

    Servicer advances are a customary feature of residential mortgage securitization transactions and represent one of the duties for which a servicer is compensated through the basic fee component of the related MSR, since the advances are non-interest bearing. Servicer advances are generally reimbursable cash payments made by a servicer (i) when the borrower fails to make scheduled payments due on a mortgage loan or (ii) to support the value of the collateral property. The purpose of the advances is to provide liquidity, rather than credit enhancement, to the underlying residential mortgage securitization transaction. Servicer advances are usually repaid from amounts received with respect to the related mortgage loan.

    Advances are typically “top of the waterfall”; first in line to be repaid and thus are very high credit-quality. Furthermore, we expect advance balances to decline substantially over time as delinquencies continue to improve and foreclosure timelines normalize.

    It seems OBVIOUS that forbearance of 6 + 6 months should include a liquidity fund for servicers that need to make ADVANCES or they should also be allowed to skip it, too.

  8. Old-school says:

    My friend lives in a small middle class neighborhood that is slowly being built out. There are ten homes there and I know everyone there. I would say 5 of the 10 are very vulnerable as they are single income households with limited savings. Two bought within the last year and stretched in doing it.

    Builder builds one at a time and just completed one in March. Bad timing it looks like.

    • VintageVNvet says:

      Mostly depends on if the builder is using his own cash or a credit facility: if the latter, very bad timing; if the former, then it depends on the area.
      In some parts of FL and CA, the housing market was back to the former boom level pricing relatively shortly (1-2 years) while in some places it has still not gotten back to the ”frenzy” level of 06-07.
      Really not looking as though this one will be over quickly in most places in USA, but there are always exceptions.

      May the Great Spirits guide us all forward!

  9. Old-school says:

    It’s kind of funny how this stuff is foreseeable by knowledgeable folks. I read an article a couple of years ago saying these non-bank mortgage lenders didn’t have a business model to withstand much of a recession. Not sure, but I think they specifically mentioned Rocket Mortgage who I think is the biggest. We will see if it’s the new kind of capitalism where bad business models are bailed out.

  10. Paulo says:

    Re: “The mortgage market has more risk than previously acknowledged,”

    Must be British with all that understatement. What were those stats, 40% of folks in the US cannot come up with an emergency $400? 60% cannot come up with $1,000? And lenders/investors thought mortgages were in better shape in a pandemic?

    We are in uncharted territory, but God help any pol who supports a Mnuchin type sleaze bagging his way into profiteering. It might take firing squads to stop the rackets, but this time they must stop or everything is at risk.

    regards

    • Portia says:

      Do they care anymore? Seriously, do they just think they have a bottomless magic for themselves and the National Guard to take care of the rest of us? This is why I did not have children I realize now.

      • Dean says:

        Same here. Never wanted kids anyway, but very satisfied that I didn’t create more bodies for their sick machine to grind into pulp.

    • Frederick says:

      Got that right Paulo The US has become “sleaze central” Gawd I’m glad to be out of that place

    • Yerfej says:

      There are many who are struggling but be realistic as about half of people who earn more than $80,000/year carry a credit card balance. That is called not living within ones means. The US government (like all western governments) doesn’t seem to be able to control themselves and their corruption BUT don’t let the people off the hook for not personally controlling their spending. People in many cases involving money are just stupid and they have to live with the results.

    • Derelict Donnie says:

      PS. Did I say “bread lines?” Actually, we already have those – and toilet paper, eggs, flour, etc.; I recently went past a Costco in Westchester (after going to a Whole Foods where we bagged bc the line as over 70 or so people at 9:30 Friday morning!) – and that Costco line was easily a quarter of a mile.

      This ain’t no joke – this TrumpDepression is already severely impacting unfathomable and, at this point, inscrutable amounts of business and personal loss – and we haven’t BEGUN to print the macro metric realization of just how catastrophic it will be.

      • Wolf Richter says:

        Derelict Donnie,

        “Physical distancing,” as it’s now called, creates those lines because stores allow only a small number of people into the stores at one time. Here in San Francisco, all the stores I go to have those lines. They’re fast moving, and once you’re inside, the store is relatively empty which allows you to stay away from others. That’s the purpose. But it does take some getting used to.

  11. I am Sam's Epiglottis says:

    no…no,no..it’s all wrong because it doesnt comport to reality…there is a fucking reality, and this shit aint comporting to it!

    2.3 trillion for junk bonds….companies that should be going thru chptr 11….but fed says its for individuals, families, small businesses, and cities and states….

    i would LOVE LOVE LOVE LOVVVVE to issue my own junk bonds, then slice and dice em, and then leverage em by 40 and THEN, only then, sell mezzanine for Ca$sh4 tra$sh

    does anyone get what im saying, WHY cant WE do this? isnt this where it is heading?

    am i just too ahead of the curve? talk to me…tell me i m wrong..i WANT TO SELL MY INFORMATION! I WANTT O SELL MYSELF!

    can someone please make a market

    • IdahoPotato says:

      This is American exceptionalism for you. Stimulus packages around the world:

      UK: 80% of workers’ salaries

      Denmark: 75% of workers’ salaries

      S Korea: 70% of workers’ salaries

      Netherlands: 90% of workers’ salaries

      Canada: $2k per month

      Australia: $1k per month

      US: One time $1200 check that may take months to arrive

      • Thomas Roberts says:

        US = A pittance to be paid in one installment, combined with a lesson of patience.

      • Beardawg says:

        Could have been $13K+/- per household in USA if Fed would have gone straight to Ma n n Street, but Joe Bag-o-Donuts (JBOD) surely cannot be trusted to properly consume and jolt the economy, JBOD would surely reinvest the $13K in risky securities in an effort to “truly” increase GDP. Can’t let that happen….that would skew actual GDP. Better put that $13K in the hands of the pros. They will trickle it appropriately and with proper foresight.

      • MC01 says:

        Idaho: you must be confusing stimulus money with unemployment benefits. Those $1,200 are on top of existing unemployment benefits, which in some cases have already started arriving.
        Think for example about Italy where the self-employed will get all of a pricely €600/month. No, not in stimulus money: in unemployment money.

        While I am all for unemployment benefits I feel this time around too many countries have frankly exaggerated with them: I understand the idea is to have people spending like drunken sailors on shore leave if they are ever allowed out of the house, but this opens a whole new can of worms. It makes my head sping just contemplating the risks.
        It would have just been better to hand out ordinary unemployment benefits and help people with fixed expenses such as utilities and mortgages.

        “I know the Gods must exist because they hate us”

        • I am Sam's Epiglottis says:

          your head spinning is a little too daft..

        • IdahoPotato says:

          Fair point. But don’t discount the fact that most Americans have no way to pay for healthcare. This is not as big of a concern in the civilised world.

        • Lisa_Hooker says:

          Those who the gods would destroy they first make – angry? ;-)

      • Max Power says:

        Not exactly a fair comparison as the Feds will be adding $2,400/month to every unemployed worker’s unemployment benefits (on top of their state benefits), plus hugely relaxed criteria to be eligible for unemployment benefits. To this you then add the one-time $1,200 benefit.

        Since the Fed’s $600/week benefit is not contingent nor calculated based on the amount of prior income, there will be a huge number of people who will make way more in unemployment benefits than what they would have earned otherwise if it weren’t for their crisis, while some of their expenses having been reduced (no childcare expenses, less commuting expenses). Thanks to this mindless Federal rescue plan there will be a large number of people who will make bank on this crisis.

        So, in this respect the US’ response is more generous than most everywhere else.

        • Frederick says:

          Yeah great and it just gets tacked onto the already mountainous debt pile right? Has anyone taken a gander at the debt clock lately? If not , you should It’s truly out of control Final result of all this insanity will be hyperinflation and ruin and much sooner than most people think

        • I am Jack's Big Yawn says:

          hyperinflation “much sooner than most people think”….so ridiculous….

          instead of trying to figure out and understand why this weimarian hyperinflation so often ‘predicted’, fails to materialize despite literally decades of john birchian screedery,

          people are lazy and just double down on their dunning–kruger IQ and repeat ad-nauseum, low imagination mantras that bare naked their utter helpless ignorance for all to see…

          and what’s worse is that by typing on a webpage they then think they’ve contributed to …something…

          it’s beyond schadenfreude and down right embarrassing….

          not to mention dead boring.

        • andy says:

          The Feds money is not going to individuals. It is corporate bailout cash, and is $4.3 trillion compared to the $2.3 trillion Cares Act – Of the Cares Act, less that half makes up the $1200 payout, meaning corporates get 75% of the total $6.5 trillion.

      • MD says:

        The world envisaged by Ayn Rand has been fully embraced and implemented. The ‘animal spirits’ and greed were fully sanctioned, encouraged and applauded by the VAST majority.

        Reap what you sow, I’m afraid.

      • Bobber says:

        The US is different. In the US, many believe in trickle down theory and the power of “job creators”. If you hand free money to “job creators” via tax cuts, loans, free cash, and other perks, the job creators could, in theory, actually create a job after all dividends, stock repurchases, executive bonuses, corporate jets, high dollar entertainment, anti-trust battles, and other corporate necessaries are settled.

      • Kerry says:

        Quit electing these crooks. People who give up their governance, give up their control…

    • andy says:

      I don’t get it, but lovving it. You prolly 7 years ahead or something.

      Wolf, can I get out of moderation pit please? I will behave. You only blocked one comment from me, out of 500. Your time is too valuable. Thank you.

      • Paulo says:

        Don’t worry, Andy…many have been in the pit (myself included). It is a random selection keyed by trigger words, I think. It isn’t personal. :-)

      • VintageVNvet says:

        As with Paulo, I too was in the pit, but only until I actually read the commenting rules, very clear and simple…
        Prolly been in there since, but only when I was ”beating my drum” too loudly, which I do have a tendency to do sometimes, especially after the happy hour!!
        As my bil who was email boss for a huge org told me, #1 thing is to ”read the manual.”

  12. timbers says:

    Well, given the rate at which the Fed is exploding QE, I am confident Mr Market will interpret this as good news. DOW 30k by November may need to be revised to DOW 40k. All is well… ALL IS WELL!

  13. WES says:

    Rent-A-Squealer

    Our Motto: “If you squeal loud enough, you will get bailed out!”

    The Problem: Don’t know how to squeal?

    The Solution: Rent one of our specially trained 4 legged squealers!

    How Do Our Squealers Work?

    Very Simple! You just pull hard on our squealer’s curly tail! The harder you pull, the louder the squeal and the bigger your bailout will be!

    Legal Disclosure: Pulling hard on our squealer’s curly tail may entail blow backs.

    /s

  14. 2banana says:

    Anyone remember the bad old days of 20% mortgages?

    How about when FHFA Director Mel Watt telling Congress that Freddie’s 3% down program (along with a similar one from Fannie Mae) was ‘continuing to grow.’

    So when, right after that, Freddie Mac “supercharged” its 3% down program and launch a widespread expansion of the offering, when it announced that it is rolling out a “new conventional 3% down payment option for qualified first-time homebuyers, – effectively the same as the 2015 program with one small difference: there would be no geographic restrictions and, more importantly, there no longer will be any income restrictions.

    In other words, whereas many Americans could not qualify for the original 3% down program because, well, they lacked virtually any income, that will no longer be a hindrance and the government will effectively backstop the lack of income.

    What could go wrong?

    • NewGuy says:

      I loved 20% mortgages. Home prices were cheap and money market accounts paid 10%. It’s how I got started. These days, even the junk is so overpriced that they don’t pencil out.

  15. Island Teal says:

    How many times do I have to tell you.. It’s Mr. Munchkin !!!

  16. Old-school says:

    It appears to me that the Federal government and the Federal Reserve believe that running a highly leveraged economy is the only way to obtain nominal growth. Maybe being the world’s reserve currency makes this so. I don’t know. There have been incentives to take on debt to live beyond our means my son’s whole life who is now 35. This is the world he knows.

    I feel sorry for families as it’s hard to not give your children a good neighborhood and education. If you are single or your children are grown get a grip and live below your means no matter how meager til you have some financial independence.

    • rhodium says:

      Some businesses make a lot of profit and thereby rake a lot of money out of the economy, then other businesses just lose money because they can’t charge enough for their goods/services to where they can achieve scale based on people’s willingness to pay. A lot of highly profitable companies have massive revenues per employee. After the last couple recessions the Fed wanted to boost employment. Well, money losing companies still employ a lot of people so they succeeded in incentivizing people to invest in them and then boosted employment while at it. Success? Not if you don’t want an extremely fragile overleveraged economy primed to rapidly implode on itself. Now they’re bailing out the junk bond market, because that increasingly is the economy.

      So what’s the problem fundamentally? Why don’t we get “organic” growth? Is it lazy millennials and government regulations? Is it technological displacement screwing with consumer demand? Is it globalization hollowing out the economy (currency too strong for labor markets)? Economists don’t even hardly want to admit there’s a crisis beyond the political theater. Most won’t admit that growth died awhile ago because their official statistics disagree. And if you disagree with that I beseech you to look though historical bls wage data by individual career profile and compare it against cumulative inflation. Where they derive the official wage growth data from I have no idea, because their other data sources contradict it.

      • VintageVNvet says:

        rhodium, you ask,
        “So what’s the problem fundamentally? Why don’t we get “organic” growth? Is it lazy millennials and government regulations?”
        IMHO, the entire concept of the need/value of ”growth” is the problem.
        There is neither need nor value to growth per se, but rather it is part of the continuing brain washing by the oligarchs and their puppets using any tool available to increase their control, etc.
        And, specifically, most of the claims of ”growth” are just part of hiding the theft of value from those folks who actually serve/make things, etc.
        Is that human nature? Nobody can say that anymore due to the propaganda that has been going on for so long, many thousands of years, at least, eh?
        While some folks are hoping that this event might lead to a more rational world, in my saddest take on this situation, it will just be more of the same, at least for the next whirl of the (not so ) merry go round.

        • California Bob says:

          re: ‘There is neither need nor value to growth per se …’

          This has always confused me. In my college Econ classes ‘growth’ was always presumed to be good, a necessity even. No one ever explained why this was so, nor did anyone question it; it was like a religion. I finally convinced myself growth in the economy was necessary due to population growth; the economy needed to keep growing to provide jobs–and avoid insurrection–as the population grew. Of course, ‘growth’ to infinity stops when the planet’s finite resources are completely consumed, but that would be a later generation’s problem.

      • Tom Pfotzer says:

        Rhodium:

        Good of you to make these points, and to do it so well.
        Every technology (“what humans know how to do”) has its life-cycle. Economic systems (production and distribution strategies) are technologies, too, and they work well for a while, till they create more problems than they solve, then they get replaced with a different technology (we find a way to do it better).

        We are at that point in the “S” curve where what we have is failing, but we don’t have the Economy 2.0 ready for production.

        Why is E2.0 not ready? Because it involves a lot of short-term pain, and we humans are not so hot at facing up to that. It has to be forced upon us. Westerner are less capable of facing pain right now, and so are a little behind in the transitional process. Asia isn’t going to do a whole lot better than us, though. These problems run very deep, and cut across all societies.

        Humans face problems that capitalism, which requires short-term profits in order to function, can’t address. What needs doing next, for the human race, will not be profitable in the short run, and therefore capitalism can’t supply solutions.

        Environmental repair. Education. Allocate the fruits of automation to all. Manage-down social/emotional needs which result in consumerism. These are problems profit-seekers can only exacerbate, not solve.

        Addressing these requires a fundamental re-fit of the architecture of the brain (long term) and fundamental re-design of our culture, values and institutions (short term fix).

        Neither of those changes are going to happen without a great deal of pain. That’s why the changes are being resisted from all corners, not just top-down.

        VintageVNvet’s response, above, is worth a slow, thoughtful read. He’s advocating a change in values, and to do it in spite of the onslaught of programming each of us receives every day.

        Before we play the blame-game, though, it’s important to recall that we have volition. Every individual has choices, and we make them, consciously or not.

        Nobody is putting a gun to our head and making us watch TV (for ex.).

    • Beardawg says:

      Old School

      Well said. We (Wolf Pack) bemoan the injustices, but as hard as it may be to get a leg up on the purveyors of debt and we (savers) get pushed farther from prosperity, there is no price on the freedom that comes from escaping debt.

  17. Just Some Random Guy says:

    Everyone complaining that only corps are getting bailed out….well here you go. Home owners are getting bailed out as well. We all know the 6 month delay in payments will turn into a 6 month forgiveness of payments eventually.

    • timbers says:

      Let’s fact check you suggestion mortgages will be forgiven.

      Firstly, your speculation on forgiveness is absolutely not the same thing as bailouts in hand to corporations, both 2008 and now.

      Secondly, lets fact check your assertion that mortgages will be forgiven. Lets look at 2008.

      Didn’t happen. Not only didn’t mortgage forgiveness happen, but a program was created to INCREASE debt on distressed mortgages, not reduce it.

      • Just Some Random Guy says:

        Whaaaaat? Were you around 2009-12? Millions of loans were modified with either a principal reduction, a rate reduction or both. And for those few who actually were foreclosed, they got to live rent free for years before being evicted. Oh and the best part….the boats, cars, boob jobs and trip to Tahiti taken with refi/HELO money were kept by the mortgage holders.

        Come on man, why are you trying to re-write history?

        • Root Farmer says:

          Just Some Random Guy,

          I welcome your data sources. While I can confirm that there were modifications in the low millions at that time, I also found that Foreclosures (not just filings) exceeded 1,000,000 for 2010 alone. Strong claims (not just outrage) require strong evidence. Could you please provide some data to back up your statements, sans “boob job” anecdotes?

          I always welcome the opportunity to have my bad notions corrected. That is why I spend time here.

        • Bobber says:

          What about all the jingle mail? People put 3% down on an overpriced house, then walked when SHTF. They made out like bandits. That’s why Fannie and Freddie needed a bailout.

          It’s not that people couldn’t make their payments, many of them simply chose not to.

          These people made a bet with the terms “heads I win, tails the government loses”. It wound up tails, and the government lost.

          I call that a bailout.

        • Lisa_Hooker says:

          Please, I need follow-up info. How is your boob job holding up (pun intended) after 8-9 years? Did it enable you to raise your hourly rate? Worth the investment?

  18. Just Some Random Guy says:

    So let’s say I get one of these plans and get a 12 month suspension of payments. Then I sell the house 6 months from now. Do I owe the accrued interest when I sell for the 6 months? I’ve not seen any media reports on this scenario.

    • Wolf Richter says:

      Just Some Random Guy,

      What you owe (the payoff and how it’s figured) will be spelled out in your forbearance agreement. The last thing any lender gives up on is interest, even if it isn’t actually paid but accrued. So it will be accrued and becomes part of the payoff. I’m just guessing here because I haven’t read your forbearance agreement :-]

    • Wolf Richter says:

      Just Some Random Guy,

      On second thought, your question raises another interesting question: Can the buyer of your house, who finances it with a government-backed mortgage, also get 12 months forbearance without even making the first payment?

    • timbers says:

      Common sense reply:

      If the purpose of forbearance is to allow folks to keep their shelter in times like these because otherwise they be homeless and subject to deadly virus, selling that shelter nullifies the purpose of the forbearance in this instance.

      Case closed.

      • Just Some Random Guy says:

        I don’t think a mortgage company can keep you from selling. I figure there has to be an angle here where you can make money on the deal. I’m betting there will be a govt bailout where everyone who took forbearance gets the accrued interest wiped out or something like that. There’s zero risk to trying. Worst case scenario is you end up exactly where you would have been making payments. And if you have any other debt at a higher interest rate than the mortgage, pay that debt off for 12 months and you’re in the black. Or buy a new car with a 12 month loan and save vs taking out a 36 month loan, since you now have the mortgage payment to play with, which is most likely lower than a car loan. Ahh but what about 0% financing you ask? Sure you get 0% in lieu of $5K worth of rebates. 0% financing is usually a bad deal for those who have good credit and have access to cheap capital.

        I’m just throwing out off the top of my head ideas. Anyone who thinks about it for a while could probably come up with a lot of good ideas.

        • NewGuy says:

          The only banker that I’m friends with told me, the forebearance interest is added to the principal. When you restart payments, the term remains the same, but the monthly payment will be higher. If you end up selling the home and the selling price will not cover the new principal, then you need to do a short sell which will ding your credit “badly”.

      • Shiloh1 says:

        The purpose of forebearance is to keep the housing market, including houses with no loans, from dropping 50% in on month.

  19. Tom Stone says:

    I wonder how much impact 38 Million Americans losing their health insurance will have on the health insurance industry?
    Lots of moving parts in this economy have stopped moving, the knock on effects will be quite interesting.

    • Paulo says:

      Tom,

      My American sister said this, “Hopefully, when this is over we’ll finally get a health care system that works”. This was spoken by a senior who had decent coverage her entire life through work, but is now sewing masks for family as there are none to buy.

      • Just Some Random Guy says:

        Tell you sister to compare the death per capita in Italy and the UK, which both have govt run health care vs the US.
        Our system works great as it is. No need to ruin it.

        • Yossarian says:

          @Just Some Random Guy 1- I’m guessing that you don’t live in the bronx

        • MC01 says:

          The problem is not Italy as a whole: the South is pretty much out of it already and there was never a healthcare crisis there. Pretty ironic considering hospitals there have an extremely bad reputation.

          In fact the big problem is a handful of provinces in the North, ironically those with the best hospitals by far. Not only that but in these provinces the average age of the victims is over 80. This is the big issue: nobody has a clue on why Covid-19 is just a bad flu season in the South and a disaster here. Since healthcare authorities keep their lips tight on the matter (and mind they are otherwise pretty good at running their mouths) they must at least have an idea on what happened.

          Now the $1.37 million question is simple: will Italian authorities be honest about the causes of this mortality or will they do like China did after the original outbreak? “Nothing to see here, please move along”.
          The rift in EU is not only due to Italy’s complete unwillingness to come up with anything resembling a “back to normal” plan, but also due to the fact many countries feel healthcare authorities in Italy are already engaging in a coverup of sorts.

          Chinese authorities famously razed the Wuhan Seafood Market to the ground in the dead of the night and had the rubble disposed of in an unknown location. But they did not censor Wuhan residents reporting the fact on social networks. It was as close as they got to an admission of guilt.
          Given what I’ve seen of the present Italian government I doubt they will be so honest and forthcoming: it’s up to our European “partners” to squeeze them hard enough until they admit the truth.

        • Jos Oskam says:

          @MC01,

          Thanks for these insights. This is new to me.

          Fyi, I am from the Netherlands, now living in France, but cannot help getting my part from the Dutch news services. Of course everybody in Southern Europe now hates the Dutch because they “coldly refuse” to accept Coronabonds to “extend aid to their suffering fellow Europeans in the south”. Whilst the Dutch suspect that this rhetoric merely serves to quietly slip in Eurobonds under another name, and have the whole of Europe pay for southern economic deficiencies that were already crystal clear before the Coronacrisis hit. One should never let a good crisis go to waste, after all.

          I did wonder about the off-the-charts mortality in Northern Italy without having a clue about the cause. From now on I will follow the news more closely.

        • Yerfej says:

          The problem is this will bankrupt many hospitals because EVERYONE has to get care but not everyone contributes to the system. The US needs ONE national insurance pool that everyone pays into for major medical through a payroll tax. NOTICE I said insurance and not healthcare. The delivery of care would remain private but EVERYONE would contribute and no one would go bankrupt. The insurance would be for major medical or “unknown” events such as heart attack, cancer, VIRUS pandemic, broken leg, etc. The reality is people need to separate insurance from healthcare so they can realize if you’re going to be forced to treat everyone then everyone has to contribute.

        • MC01 says:

          Jos, I strongly suspect the Dutch government is merely doing a “good cop bad cop” act together with Germany: the money will eventually arrive but Europe wants two things from Italy.

          First, a detailed plan (like Austria) or at very least a strong commitment to reopen the country for business shortly.
          I cannot stress this point enough: without Italy, or to be more specific without Italian manufacturers, most European supply chains cannot exist.
          The Italian government doesn’t want a return to normal for reasons I will not explain: suffice to say they want to have the cake and eat it too.
          Second, like I said, our European partners want another firm commitment in revealing everything about the epidemic in the North. Nobody wants the same thing happening to his country and, much more critically, these folks want to avoid a full lockdown at any cost if this thing rears its ugly head again.

          You will find no bigger support of austerity than me, but it has to be the real thing (read: live within one’s limits) not the empty word it has become over the past decade. I hope this time around the Italian government will be forced to yield to eat the cake, and not merely because I am tired of this lockdown.

        • td says:

          The US is about three weeks behind the curve from Italy and deaths are growing exponentially. Quite a few jurisdictions like Florida are only in the early stages and will get to join Italy in the the numbers.

          The US health care system is busy ruining itself, so get back to us in a couple of months about whose system is better.

        • Paulo says:

          Check out BC and where we sit with the pandemic. I feel sorry for your situation, to be honest.

          Province the size of the 4nw states….4 million +population..centralised single payer system with just 5 health regions…started prepping in January for the pandemic…140 cases in hospital and 5,000 empty beds waiting in case the outbreak worsens…ample icu beds, ventilators, and masks.

          https://www.cbc.ca/news/canada/british-columbia/bc-covid-19-maintenance-phase-april-easter-1.5528959

        • Broker Dan says:

          For 2T$ couldn’t we have just built a thousand hospitals and bought 1 million ventilators?

          Money better spent?

        • California Bob says:

          re: “Tell you sister to compare the death per capita …”

          Death ‘per capita’ is 100%.

    • Yossarian says:

      @Tom Stone – yes, this is going to be a wakeup call for single payor health insurance. Neither trump or biden will ever go for it. But at this point, nothing would surprise me. Even martial law is on the table.

    • polecat says:

      Viral sabots indeed ! Not only are the gears of commerce stuck … those gears are showing signs of severe stress fractures, without the means of repair should they finally shatter.

      I’m glad that I paid off the mort gaged, back in ’09, even though perceived by whiteshoe finance to be a chump, for not playin the wallstreet casino ! We began to establish our suburban-survival kitchen garden in at that time as well, not knowing what fate would throw our way, considering the circumstances of the time.
      So now, those neighbors who’d snicker and condescend that moi for having prepped modestly for such times, are now hurriedly attempting to put in their own garden regimes – There is a bit of a learning curve in knowing how to grow food, however .. so they get to play catch-up !

      Since I’ve now gottin a head-start on this Spring’s garden chores, I have some time freed up .. to working on that guillotine, along with the crossbow bolts, chainmail, and plate !

      • Lisa_Hooker says:

        So glad that you have time and your gardening experience is there to help your neighbors get started properly. Always good to have as many productive gardens as possible.

  20. DR DOOM says:

    Just like 2009. The connected will eat the peach and then will allow us to suck on the pit.

  21. Tim says:

    What has been done, for the best of reasons, is light a bonfire under the powder room.

  22. Wes says:

    The implied question is how long can inflated assets be held by an entity without cash flow. The Federal Reserve can take them as collateral in exchange for cash, but the entity will either have to buy them back at some point or the Federal Reserve will need to hold them until maturity. Balance that against the declining incomes from the majority of the working population. I suppose the assets could be gradually reintroduced into the market based on actual demand which is now very weak and this seems to be the current game plan.

    The law of supply and demand states that if you put an artificial floor under demand you will always have a surplus and if you put and artificial ceiling on demand you will have scarcity.

    • Social Nationalist says:

      Right, but the primary dealers have to own the inflated asset, which they won’t touch, making the Fed as irrelevant as the day. The Fed is Mr irrelevant as Bernanke predicted 3 years ago when the non bank boom got really going.

    • I think you mean MBS pass through payments. I think the Fed intends to front those until the system clears.

  23. Social Nationalist says:

    There is no Fed bailout. It’s liar’s bailout. The primary dealers will ignore it and bring back their share, which they lost from the nonbanks. Compared to 2008, this is nothing. More risk???? Please. I have been waiting for the nonbank collapse for 3 years.

    • backwardsevolution says:

      If you are saying that this is a way to squeeze out the non-banks, that thought went through my mind too. Are you saying this?

  24. Ron Kallhoff says:

    Very simple economics all assets will fall 90% before this is over was taught by my grandmother who went through the depression got through it living on a farm in Nebraska so able to fed family and survive I have no debt as was taught to live in my means feds will print money until its wallpaper really improtant things family food water shelter

    • Social Nationalist says:

      Dude, they can print all the electronic currency they want. When the banks don’t turn that into money, they are creating nothing. At some point you will get that. When F/F try to use larger mortgage servicers to only find a anal canal in their nose, the loans are dead and liquidated. The nonbank, toast. While JPM high fives each other.

    • Rcohn says:

      As incomes come down, so will monthly rentals. And that will negatively effect the price of rental housing and will make renting more attractive than owning.The price of housing in the more expensive markets are on a cliff and just a small action will be enough to topple it.

      • NewGuy says:

        Don’t count on it. In my 65 years, stocks, bonds, real estate, gold, everything has taken a hit at one time or another, but rent has NEVER gone down.

        • Wolf Richter says:

          NewGuy,

          “…but rent has NEVER gone down.”

          That may be true in the city where you live, but it is not universally true.

          For example, during the oil bust in the 1980s, rents in Tulsa plunged. In 1986, I moved into a nice upscale brand-new apartment complex and paid about $600 a month for a one-bedroom. By late 1989, when I moved into the condo I’d bought, my rent at that place had dropped to $380… and they were still trying to fill the units. And that was still not the bottom, which came a few years later. And it took many more years (decades) to recover.

          There are many other cities like that. Rents are very local. When it hits the fan at the local level, and people leave to find jobs somewhere else, rents drop as vacancies pile up.

        • NewGuy says:

          OK, you got me on this one instance, but boom- bust towns like that are few and far between. Heck, I could have gotten you cheaper rent in Bodie, Ca.

  25. Jdog says:

    What a mess. So if you allow a forbearance on principal and interest payments, you still have insurance and property tax. Are they expecting the mortgage companies to service these payments? Or is the government going to pay that for people too?
    Can you imaging the uproar from renters who are on the hook for rent while homeowners get to skate for a year?
    If during this year, property prices fall, and people decide to bail on the property because it is upside down, is the government going to reimburse the mortgage companies for the lost payments?
    The moral hazards of these stupid decisions keep getting worse and worse. Do they realize they are incentivizing people to be dead beats?
    Well, I am sure they will get exactly what they are paying for.

    • Max Power says:

      I am not sure you can compare renters to owners vis-a-vie the government. Nearly all owners’ mortgages in the US are guaranteed by the US government and as such it’s not a stretch for it to facilitate some kind of forbearance as it is on the hook either way. However, there are no such guarantees in the private rental market.

      • Shiloh1 says:

        I agree with you both, the whole thing should have been allowed to collapse 11 years ago. Instead congress (bill by Congressman Kanjorski) allowing the banks to mark to fantasy the value of the houses / mortgages. Denninger said on that day. That’s when the stock market took off upwards in end of March 2009.

        • sierra7 says:

          Shiloh1:
          Bingo!
          Once the mark to market “rules” were demolished the markets did take off. It’s so simple to track!
          We had the opportunity to set things on a better path back then but this rule change demolished all roads to “reform”.
          Every time I mention this to my friends/family they just roll their eyes and look for a more “complicated” explanation.
          It’s been all, “mark to fantasy” since.
          We live in a fantasy world and it will end up when we are awakened by a massive blow to our heads like trying to awaken a jackass that refuses to ploy a straight line.
          Stay safe and healthy out there.

  26. Festeeus says:

    Slightly off topic, oil still gas a ways to fall with inventory exploding with little demand:.

    In China, stocks have spiked to over a 1 billion barrels in storage from just below 900 million in January, according to OilX data …

    • Rcohn says:

      Inland oil storage will be completely filled in 30 days. Then producers will have no choice but to cut production

    • MC01 says:

      If you have AIS Marine Traffic or a similar website/app zero on the coastal areas of Asia near oil refineries and look for the red dots, meaning oil tankers riding at anchor.

      The clusters around China are only starting to move right now: while economic activity is picking up, storage facilities of refined products are still packed full. This is because oil refineries, even of the infamous “teapot” variety, could not be completely shut down and kept a steady flow of production even at the bottom of the crisis.
      But the clusters around Singapore are only getting bigger and there’s a nice big growing one in front of Rayong (Thailand). A few clusters are starting to form around India as well.

      But the scary stuff is Europe. Malta is surrounded by red dots and the line in front of Port-de-Bouc (the huge commercial harbor of Marseilles) is getting really long. ARA (Amsterdam-Rotterdam-Antwerp) looks worse by the day. St. Brides Bay (Wales) is starting to be used as well.
      This is exactly what I have been fearing all along: China may have been ground zero for the healthcare crisis, but Europe is ground zero for the economic crisis that will follow.

  27. Matt says:

    This sucks. So essentially there will be no real estate bubble popping? People are indebted to renting forever (those under 40)? I’ve been patiently waiting for a collapse in the housing market. Come on!

      • Caveman says:

        Wolf,

        Please tell this young man to get with the debt slave program.

        How can we expect him to work hard if he isn’t buried in debt (student loans, McMansion & a gas guzzler).

        What else do we have to do? We have already cut pensions & shipped jobs to 3rd world countries.

        Living wage? The more you pay em, the less they wanna work.

        -Corp America

    • Frederick says:

      Matt like Wolf said patience There will most certainly be a real estate correction or possibly collapse It’s baked into the cake at this point Just keep your powder dry and wait I’ve profited from these type of situations in 1982 , 1993 and 2001 so I feel qualified to advise you

      • Twinkytwonk says:

        I’ll keep an eye out for your posts though i’m in the uk so it may be different.

        in 2000 (just before i got married) i thought “this bubble is going to blow”. In 2004 i thought, ” this is it” . In 2009 i thought, “they can’t reinflate this”. Through out all these years all this i’ve been saving like a good un and have a fair wad of cash which i plan to buy a house and use it to keep me independent for the rest of my life.

        It’s a job to know what to do with the f***wits at the controls.

      • Ethan in NoVA says:

        2001 was 20 years ago. That’s a long time.

        I’m hoping the younger people start to revolt against things but I don’t think they understand how bad they’re getting screwed.

        With a year forbearance on mortgages that is going to delay things a long time. That is going to generate a lot of cash in the market.

        I want to see the housing market crash big time :-(

      • Old-school says:

        I am not so sure anymore. Monetary and Fiscal policy has been running wide open to keep the economic bathtub filled. As Jim Grant says asset prices are now being administered. His great question “What do corrections correct?” if the Fed no longer allows corrections.

        I personally think the the Fed is all in and if they fell it’s time for the great reset. They have a lot of tricks in their bag but if they badly screw up, we are all going to see the crack up that hard money people talk about.

        • Jdog says:

          Nonsense, The Fed does not have absolute power. It’s actions are subject to the laws of finance, and they cannot ignore the laws of finance anymore than they can ignore the laws of physics.
          We have had plenty of corrections since the formation of the Fed including the great depression. People tend to judge reality based upon the anecdotal evidence of their personal experience.
          Debt based economies place valuations on assets based on perception. That perception is often based on whatever the last person paid for that asset, and is not based the assets intrinsic value.
          In such a system, asset values always outpace income. This happens for decades, until the valuations become unreasonable, and then their is a correction. To answer Mr. Grants question, the correction corrects the perception that assets are worth much more than they really are….

    • Jdog says:

      The government cannot stop what is now happening, they are sticking their fingers in the holes of a crumbling dyke. Nothing built on a unstable foundation can last.

  28. tommy runner says:

    thanks wolf, came for the housing, stayed for the bonfire.

  29. Just Some Random Guy says:

    This is interesting…..

    Everyone assumes real estate will plummet, and especially on the high end and especially on the high end vacation market. Right? Maybe not. Vail’s March 2020 number of sales was the same as March 2019.

    This is Vail we’re talking where $1M is entry level stuff and $2M+ is livable. If this stuff hasn’t been affected, it’s a sign the recession/depression everyone’s talking about isn’t happening.

    Dow 30K by end of year and real estate unaffected is my prediction.

    • Wolf Richter says:

      The RE market has now seized. Homes for sale get massively pulled off the market because there are no buyers. Early indications are that sales are down 60%, and it remains uncertain if these deals can be closed. The Fed is already backing off QE. Cut it in half so far, and will cut it further. The only thing stocks had going was the Fed and the Fed is stepping away. So don’t celebrate your Dow 30K prematurely in public.

      • Joe in LA says:

        Will the 4.5 trillion SPV money make up for the decline in QE?

      • David H says:

        Wolf: so not long equities yet? Do you reckon this recent strength is just a bear market rally?

        I know Yardeni forecasts SP 500 EPS to be about 120 this year, Which at Fridays close means we are trading at a PE of 23! Insane.

        I expect us to get back to 2000-2300 but my gut tells me the buying party will continue. What do you think?

        • Jdog says:

          Study a chart from 1929. It is normal for people to deny what is happening, and to think we are going back to previous highs.
          Whether it is a natural disaster or an economic one, normalcy bias can be very dangerous. Neither hurricanes or bear markets care if you believe in them or not.

      • Just Some Random Guy says:

        Well “early indications” in Vail say otherwise. Same thing in Montana. Sales have not been affected in the least. Rich people are still buying vacation homes. And why wouldn’t they? With $2.2T of bailout money sloshing around, might as well pick up a nice ranch or ski chalet.

      • cb says:

        Is the FED not continuing to digitze money through the Special Purpose Vehicles (SPVs)?

        Is that not their part of the joint mandate, with the Treasury, that authorized and created the SPVs?

      • cb says:

        Wolf said:

        “The Fed is already backing off QE. Cut it in half so far, and will cut it further.”
        ________________________________________

        Is the FED not continuing to digitze money through the Special Purpose Vehicles (SPVs)?

        Is that not their part of the joint mandate, with the Treasury, that authorized and created the SPVs?

    • Nick says:

      I am in a market for Hawaii condo . prices did not badge a bit last 2 months and inventory very low

    • doritos con queso says:

      Well Vail is tourism/recreation, so only elite can live (‘Buy’) there, I think that is the trend now people with means flee the bad to the good.

      I think lots will sell their San Rafael ranch for something in Colorado

      Massive permanent downsizing is coming to the bay-area, but I suspect that all Colorado resort towns will see those that can “Go Galt”. ( People with lots of cash & time. )

      I agree that the stock market will go to 30,000 that is a given, until the FED is shutdown, and its not happening in our lifetime.

      From where Wolf is standing the world is coming to an end, I think right now much of the world is just fine, if your rich.

      I’m living lock-down right now, tomorrow they quit selling ‘booze’ for a week ( the horror ), so yesterday I stocked up massive supply’s. I might add I’m a home-brewer, so its not like I’m going to hurt, just wanted to have back-up.

      Even though were in lock-down, I can go anywhere I want, just can’t hang-out in public groups. Is lock-down any different than normal life? Not really, just quieter, slower.

      Long term the USA real-estate is going down & hard, IMHO its going to be the hyper-inflation deal, and that is always followed by deflation in real wealth. So that DOWN 100K, and $10M mcMansion, will have a ‘gold value’ of grams.

      U watch what’s happening so attempt is being made to increase actual manufacturing.

      It only matters to watch DOW in terms of Gold Ratio, and same for you urban mcMansion. The FED can create Trillion’s per week, but eventually bad money drives good money out of the system. Only Gold is Money ( JP Morgan )

    • Frederick says:

      DOW 30,000 and DOW/ GOLD ratio of 1 or 2 possibly,which means hyperinflation and that’s not where we want to be is it?

    • robt says:

      A month ago, Toronto average was 1,020,000. Today, average is 923K.
      Prices now show zero one-year increase.
      In a normal year, prices would increase until mid-May – June.
      Probably many similar profiles in different zones in North America.

      In Canada there is a deferral option offered, similar to the States, but that doesn’t address the need for new buyers/bidders, especially with lockdown/house arrest measures and quasi martial law in place. Maybe you can sell new cars on the internet if people can afford it, but houses, surely not.
      This economic suicide isolation insanity has to stop, but with many governments around the world implementing advisories to doctors to book any death as suspected or possible C-19 no matter what the cause to pump up the death numbers and maintain the lockdowns who knows when it will end, or why it even began?
      Italy was originally the worst offender, with only 12% of deaths attributable to C-19, but everyone else is joining in. The bigger the numbers the bigger the grants and compensation.
      Canadian ‘experts’ recently modeled (in headlines) there could be 350,000 deaths (in the fine print in the body of the articles: maybe 11,000 or 22,000) with actual deaths at the time about 460 and it’s nearing the end of the virus ‘season’. More reason to shut down the economy? Why?
      New Zealand locked down with only 1 deaths (now 4) in a population of 5 million. Why?
      This is like the Y2K silliness on steroids.

      • Paulo says:

        Robt

        Maybe stay out of the sun and away from those conspiracy theories about how this is all a plot to destroy the economy.

        Without lockdown and a 2% mortality rate…say just 60% get the disease before herd immunity lessens the onslaught, the results are straight math. It would be only 420,000 deaths, say the size of just under Brampton. Then, add in the collapse of the health care system and those resulting deaths maybe double to 1 million. And this would be better for the economy?

        • steve says:

          Actually mathematically speaking yes. Given the weighting of the deaths toward the elderly and poor. Speaking from a purely mathematical perspective, this helps stabilize the Social Security System and lessens the burden on Government Services.

          So yes, Robt has a valid point. It’s just one nobody wants to acknowledge or talk about.

    • sc7 says:

      Did it occur to you that your sample size of one city, a luxury location where the very wealthy (largely unaffected by this crisis) may not be a good barometer?

      Look at more than one city, and you’ll see your assumptions don’t hold up. YoY price growth is cut in half from H1 to H2 of March, and plans to purchase a home have fallen by the largest amount since 1979.

      I am seeing a decent sales clip here near Boston, mostly because inventory is so low. I am, however, seeing a remarkable number of properties fall through in escrow, and some people I know in the industry are telling me the bidding wars are gone, and sellers are taking cuts not seen since 2015…

  30. Aussie Andy says:

    Interest rates this low & you only need 1 house to live in. I think a we have a few too many piggies at the trough in trouble that I don’t care about. If there on the phone asking forbearance what are they doing with their credit cards? Asking for scissors??

  31. littlebit says:

    They are trying to make me feel bad about paying mine off in 5 years.

  32. Weary Patience says:

    Please excuse my language but let these bastards burn to the ground. People in the US should be grabbing their pitchforks and demanding heads at this point.

    The article below shows that once again, they’ve been issuing loans to buyers who have NO business trying to buy a home – all backed up by federal program(s)

    https://www.bloomberg.com/news/features/2018-05-24/small-time-bankers-make-millions-peddling-mortgages-to-the-poor

    Excerpt:
    Many of Christian’s customers have no savings, poor credit, or low income—sometimes all three. Some are like Joseph Taylor, a corrections officer who saw Christian’s roadside billboard touting zero-down mortgages. Taylor had recently filed for bankruptcy because of his $25,000 in credit card debt. But he just bought his first home for $120,000 with a zero-down loan from Christian’s company. Monthly debt payments now eat up half his take-home pay. “If he can help me, he can help anyone,” Taylor says. “My credit history was just horrible.”

    Christian can do this kind of deal because he is, in effect, making the loan on behalf of the federal government through its most important affordable housing program. It’s a sweet deal: He gets his nearly risk-free commission. Taylor puts no money down. If things go south, the government ultimately bears the risk.

    This kind of lending echoes the subprime mortgage boom that preceded the credit crisis of 2008. Then, as now, independent mortgage companies, the so-called nonbanks, dominated the business of making loans to people with blemished credit and low incomes. In the pre-crash years, companies such as New Century Financial Corp. helped spur the crisis with their shoddy underwriting standards. Using a line of credit from a major bank, they would offer mortgages essentially to anyone with a pulse. They would then quickly resell them into a market that repackaged them into high-risk securities that were destined for failure, infecting the financial system and requiring a government rescue.

    • backwardsevolution says:

      Good reporting. I think the reason you don’t see pitchforks is because everyone is in on the game, even Joseph Taylor.

      So exactly the same thing has happened again, the unloading of junk onto the backs of the taxpayers, except this time it was predominantly done by the so-called “non-banks”.

      This corona virus almost seems like it was Heaven-sent, at least to the swindlers. A very convenient opportunity to unload.

    • Broker Dan says:

      There’s a lot of misinformation in that Bloomberg article (shocking I know).

      Now, the general theme may be somewhat true in that there are government (state and local) programs that provide down payment assistance to low income buyers.

      FHA provides the first 96.5% financing, and then a state or city program *could* offer the 3.5% 2nd either via loan or Grant. But, you do need to income and credit qualify. Then, unless you get seller credit, you still need to pay for closing costs, which can be 2% of the purchase price.

      These programs typically have 43%, 45%, or 50% max debt to income ratio guidelines. This is based on GROSS not NET. There’s 0 chance it’s half his take home pay, simply inaccurate.

      I personally have never written these types of loans due to the areas that I broker/lend, the likelihood of a buyer having an offer accepted we this type of loan structure attached is virtually zero. Plus this person doesn’t have money for a decent escrow deposit.

      While it is true that FHA in general had (past tense) lax guidelines, since they have tightened up dramatically recently, let’s not make the mistake of comparing FHA to last decades subprime and fake loan programs. The 2 are NOT comparable.

      • Weary Patience says:

        Using gross income to calculate debt to income is worse than using net, in my opinion. Example you make $5500/mo gross and if you have 50% dti, you spend $2750/mo servicing it. Take home (net) is obviously less after state and federal taxes, fica, etc. So your dti is above 50% effectively (you have not access to “your money” that’s comsumed by taxes)

        The government backing of mortgages, super low or no money down, and the ability to pass the buck (risk) by packaging and selling leads to increased risk. Again.

        Individuals who can’t even save up 10-20% of purchase price, not to mention any amount of safety buffer for “life happens” type of events, have no business attempting to take on such an amount of leverage. It is irresponsible and dangerous to continue encouraging it – especially given employment stability has been decreasing in America over the past few generations.

        I realize not every lender is “that guy” but the non-banks provided a perfect smokescreen showing everything is being taken much more seriously and responsibly now so there’s “nothing to sorry about” and “it’s different this time”

        • Broker Dan says:

          The non-banks or wholesale lenders don’t set the guidelines. They merely follow the guidelines and do NOT deviate from them.

          Your beef then is with the GSEs and FHA. they develop the guidelines, and lenders simply abide by them.

        • Weary Patience says:

          Yes, Broker Dan. My beef is primarily with the GSE/FHA entities. They basically induce weakness and for what? The feel-good goal of “everyone *deserves* to be able to own a home!”

          The lenders should counsel purchasers better though – if they see someone who’s had bankruptcy or doesn’t have savings, it should be explained to them very clearly that their taking on the risks of home ownership is not advisable, even if they “qualify” based on the program guidelines.

          Get the government out of insuring loans. Get rid of “affordability” programs. Don’t allow mortgage backed securities – make the originator keep the risk for the duration.

          If we continue on this same path it looks like it will be larger and larger gyrations of boom-bust until it’s just bust.

  33. Island Teal says:

    RE sales are tanking as we read this article because the lenders have folded up shop. MB are not writing paper. Maybe the best thing to come out of this will be the all-out simplification of the process and the elimination of more of the deadwood.

  34. otishertz says:

    1) tide goes out and naked people exposed
    2) parakeet toothpaste is coronacure
    3) mortgages = asset to rehypothecate 11 times = profit
    4) slaphammer chopstick balogna skin federal reserve…
    5) abandon forbearance
    6) you don understand my Engelish
    7) repos are bad in theory
    8) too many cooks spoil the brew

  35. otishertz says:

    9) My AirBnBoomer just got a lot more profitable on paper.
    10)

  36. Michael Engel says:

    1) Dr.Claudia Sahn will beat JP in arm wrestling.
    2) “Borrowing” short will cost more, because of high demand.
    3) From 30K to 18K in 5 weeks, up to 24K in 3 weeks. That’s volatility.
    4) 14K – 15K might be next. The DOW will punch 2007(H).
    5) China doll face is already recovering, but the global economy slumped.
    6) There is low demand for Chinese junk.
    7) The DOW current assault was stopped by the 2018 defensive complex spikes.
    8) After reaching Feb 6 2018 resistance line, that used to be support,
    the DOW turned around.
    9) The DOW(c) was on weekly ma200.
    10) Ichimoku (18,52,104) DOW weekly front line needle is resistance. The DOW made an upthrust on the cloud front line.
    11) The cloud stopped the DOW.
    12) Deflation will destroy debt and 401K as well.
    13) EW wave 3 of 3 is next.

    • otishertz says:

      I made a solid upthrust on my Engelish reading comprehension but arm wrestled with certain details after my junk slumped

    • VintageVNvet says:

      ME, Love it, and OH is going to Engelish to advance the cause!
      Wonderful stuff, and the logical extension of this morning’s e cartoon linked to below, eh?

      https://www.arcamax.com/thefunnies/zits/

      hope you’re OK with this Wolf,, too funny not to share

    • Andrei says:

      “13) EW wave 3 of 3 is next.”

      I have the same feeling. It this does happen, this will be something to remember for the rest of our lives. Citing Bob Prechter, 3rd of 3rd waves are “the wonder to behold”.

  37. andy says:

    I have a question about the US financial system:

    Why does Congress need to approve a $2.2 trillion C19 Cares Act, but the Fed can “expand it’s balance sheet by $4.3 trillion” (read – bail out every dud bank deal at 100 cents in the dollar shifting losses and risk onto the US taxpayer) without Congress approval.

    This looks like two thirds of the government benefits of this C19 crisis are going to the 1%ers with no approval from Congress/oversight by the people.

    What sort of a dud system is that?

    • MD says:

      The one implemented because you keep voting these people in and then letting them get away with it..? The option of socialism for the masses has been rejected, so it looks like the USA will be sticking with socialism for the privileged.

      As long as all people do is whinge on the internet, don’t expect it to get any better – in fact all the bets are the wealth gap will grow because of the ‘cure’ that’s been implemented.

      I mean – why would it get better for the ‘common man’ if the grifters fear no reprisal?

      • polecat says:

        Ok, so who throws down their gauntlet first ??

      • cb says:

        @ MD –

        “The one implemented because you keep voting these people in and then letting them get away with it..?”
        _________________________________

        Okay, since “we” keep voting “these people” in, who are ALL put on the ballot by the Plutocrats – think Citizens United -, what do you suggest be done, specifically? And how are you going to lead, or participate in your suggested actions?

        And who are “these people”? What were the options offered that were better?

        I got no say in any of the FED or Treasury appointments. Did you?Bush 41 was a liar, Clinton a slickster, Bush 43 a Corportist “I have to save capitalism from itself” Cheerleader Dupe, Obama a Corporatist sellout. Trump was elected by a people desperate for change; as soon as he started appointing Goldman Sachs types, you could see where things were going.

        Those who haven’t followed the proper line have never made it to the vote. Buchanon, Perot, Bernie, Warren, etc. – Didn’t matter their party.

    • doug says:

      perfect system for those that run it.
      feature not a bug.

      • Broker Dan says:

        Serious question.

        One thing I don’t understand based on lots of comments on here is the following:

        Many are very anti-big bank on this topic. Big bank gets virtually free money then lend to buyers and collect interest on the mortgage. They sit in their smoke rooms and laugh at the peasants (or something to that effect).

        Many of those same commentators on here then say that the non-banks or “shadow lenders” don’t play by the rules, and have no risk, commit fraud, and lend to anyone with a heartbeat, etcccc…..

        So the question becomes, how is credit supposed to be extended to the US consumer that wishes to buy a home?

        • Seen it all before, Bob says:

          Dan,

          I commented below.

          The last time I refi’d, lenders didn’t have any interest in my savings. They only cared about my past 2 years of income.

          Should lenders require 2-3 months of savings reserves to pay 2-3 months of mortgage payments?

          It seems there are too many borrowers who don’t have one mortgage payment in reserve.

          Your thoughts?

        • Iamafan says:

          Because it’s fashionable. But most have not thought about how that money will trickle down to Main street.

          My nephew was a bank loan manager of our local bank. He quit his job, often griping how his big bosses would renege on his deals causing him to lose face with his local business clientele.

          The Fed and the Treasury can create all the money they want, BUT someone has to INTERMEDIATE that money between the Source and Main Street. That someone are the non banks and banks. And it ain’t just a home mortgage. It’s also a lot of mom and pop businesses in your neighborhood.

          One of the biggest problems are the wanna-be borrowers are now insolvent and are not fit to be borrowers.

        • cb says:

          With respect, I think the better question is, how can we curtail credit to the US consumer who wants to buy a home (and curtail credit even more to investors).

          If that was done, house prices would drop like a rock, and the consumer would be better off.

        • Broker Dan says:

          Bob,

          Valid point. During the last meltdown 08-10, it was determined that income income income was the component necessary to mitigate risk of default.

          More so than down payment and reserves. That’s what Dodd Frank focused on in the mortgage reform.

          They probably figure, a primary residence, good credit, good income, reserves not needed due to low risk.

          As opposed to am investment property, where you do need 6 months reserves.

          I always see a large dichotomy of opinion on mortgage qualification.

          One faction is always stating that programs are to lax, anyone can get a mortgage credit scores are fake etc.

          Then the other faction chimes in that it’s too big of a pain to get a mortgage because they have perfect credit and plenty of income but lenders keep asking for additional documentation and to explain a certain this or a certain that and why can’t it be easier and more streamlined etc

          In my opinion, the truth is somewhere in the middle.

        • Broker Dan says:

          Cb,

          How much do you want to curtail?

          For instance, purchasing a rental property you need 20% + reserves (6 months per each financed property you own). You also need to income qualify. Furthermore, if we’re talking 2-4 units, the down will need to be increased to 25-30%. Do you want to bump to 40% minimum? 50%?

          Furthermore, the GSEs are already and have been tightening up for the past 12 months.

        • cb says:

          @ Broker Dan –

          For starters, I don’t want ANY governement involvement (including government sponsored entities) involved in real estate lending.

          And, while we are at it, no FED created funny money.

        • Broker Dan says:

          @CB,

          So, in that scenario, where would the market be for lenders? What’s safe?

          30-40% down for a buyer on a primary residence?

          So if prices drop like a rock like many would like and credit is only extended to the cream of the crop, won’t the BIG cash buyers rule? The big money, the connected money that many rail against would scoop these up at big discounts and we are a rentier society?

          Truthfully I don’t know the chain reaction, just spitballin, but, sometimes the unintended consequences are worse than the original problem….

        • cb says:

          @ Broker Dan,

          It should not be the governments job to make loans safe for lenders. What is safe for lenders is for them to put their money at risk under whatever terms they think necessary to get their money back, without government guarantees or assistance, and to price the loan for the risk that they don’t get their money back.

          Cheap prices are the best prices. It is more prudent for a buyer to figure a way to get the money for a cheap house, than figure a way to get the money for an overpriced house. These government guaranteed loans do nothing except make ever truly owning a house more unattainable.

          You are right about unintended consequences, except that often they are intended. It has taken a bit of doing, with help from government guarantees and FED money printing, to drive housing bubbles and make many Americans debt slaves.

    • Jdog says:

      The Fed does not answer to Congress or anyone else. They are not an agency of the US government, and are not under their control.

      • Broker Dan says:

        Jdog,

        And are also controlled by the Rothschild’s and Warburgs?

        • Jdog says:

          They are a private corporation. Their shareholders are the worlds largest banks. Research it.

          In 1895, after gross mismanagement of the countries finances by Congress, the US Government went bankrupt. JP Morgan and the Rothchild’s bailed out the US Government by the same method the US Government is funded today. The only difference was then they supplied gold instead of credit to the bankrupt government in return for notes from the Treasury.

          In repayment of their debt to the bankers, the US Government leaders agreed to the formation of a Central Bank, something the bankers had not been able establish since Andrew Jackson closed them down decades before.

          By 1912 the bankers had paid off enough politicians to gain the political support they needed to pass a Federal Reserve act. The first act was passed in 1912 but was struck down as unconstitutional by the SCOTUS. The banks bought off SCOTUS and they pushed it through the following year.

          The income Tax Act was passed as insurance that the Federal Government would have a income to pay the interest on the borrowed money supplied by the Federal Reserve, basically using the US Citizens income as collateral.

    • TrojanMan says:

      Congress did approve the Fed’s ability to leverage a fraction of Treasury funds (approved via the recent bailout) into that $4.5 trillion when the passed the Federal Reserve Act.

  38. Max Power says:

    I laugh at this notion that the GSEs could ever be re-privatized like has been talked about for years. And even if that ever happened, at the first sign of crisis they would obviously be re-nationalized again (de-facto or de-jure), just like last time.

    I will remind you that during the when they were private companies, their bonds literally said in big bold letters that ‘these instruments are NOT guaranteed by the US government’. When the crisis hit the government’s attitude about that was basically “whatever”, and the Fed proceeded to buy them by the trillions.

  39. Counterpointer says:

    If I can navigate the detail and the acronyms, and it’s starting to make the GFC shenanigans look as simple as a children’s story, the main point is that the US real estate market will never clear. Ever. If that’s right, then the absence of market clearing for such a huge asset base (or liability book) has some quite big implications. One is that there is no consolidated balance sheet for the US of any degree of credibility or rigor. How then does the mythical system of capital allocation, deployment, return and risk actually work? What do you even call it?

    C

    • sierra7 says:

      Counterpointer:
      Another bingo to another aware commenter…….
      I don’t care how you “slice and dice” the situation…..
      It’s all “mark to fantasy” since early 2009!
      Enjoy the ride………

      • polecat says:

        Whatever you do, avoid riding on a unicorn’s back. They’re spiraling out of the cloudy heavens like flies to a whirlwind !

        Only thing to show for all their glittery mania .. will be scores of broken, half-buried, splintered tusks.

      • Counterpointer says:

        sierra7 – I still remember the suspension of FAS157 in March 2009. Working in DC, in finance, and people started getting quite talkative and excitable – something was coming – there was something qualitatively different about the leaks, you get a sense of their flavor after a while. So people start buying with both hands – it looks insane, except if you know there’s something coming – so the floor gets put under equities and does a freaking moonshot and the authorities finally get around to making the announcement. MTM is dead, you don’t have to report every quarter, and if you don’t feel like reporting at all, just come and have a chat and we’ll work something out. And there it was – free money on one hand, and a nice blanket of opacity to throw over the sh!tpile on the other. Two sides of the same coin: Extend, AND Pretend.

        They pretended to bring back 157 but it was so full of holes the main point was the press release, not the implementation.

        And here we are.

        C

  40. Dave K. says:

    I was able to refinance 4 of my loans during the last TARP. I was current on all but being able to Lower interest rates surely helped with my cashflow. Fast forward and now one of those loans is paid off. Allowing me to refinance the other 3 would further increase my cashflow, which would increase my ability to make capital improvements, which in turn puts more money back into construction/contractors, which in turn employs people, who in turn spend $$$….Not too mention all the entities who profit off a refinance….Would it make Sense for this to happen again?

    • cesqy says:

      I think -2% would make a lot of sense if you’re getting the refinancing from a shadow bank.

    • NewGuy says:

      We all did that Dave. But how much lower can rates go?

    • cb says:

      Im happy for you Dave, but that FED and government manipulation is exactly what picked winners and losers, and pushed asset prices. Good for some, bad for others, particularly the younger crowd. …………

      who now, surprise, surpise, support Bernie, AOC, etc.

      • Dave K. says:

        4.25% mortgages look good, but not against 2.5% mortgages. How low can they go…..what do they need to do so people keep there homes?

        • Broker Dan says:

          No interest rate is feasible if the borrower doesn’t have income. That’s the point, the economy is on hold, people can’t work if they’re in lockdown.

          There’s no real answer right now…

        • cb says:

          Let them lose them, if they must, and they truly can’t afford them. To stop subsidizing and saving the market would have house prices drop substantially. Then when they can afford them, they can buy back at a cheaper price. Subsidizing low interest rates does nothing except artificially drive up prices. Housing is already at nosebleed levels due to intervention in the markets. Housebuyers are better off when they can truly afford a house. Houses are cheaper when you don’t have the government guaranteeing loans, allowing interest to be tax deductable, allowing investors to deduct interest and depreciation, when you don’t have the FED bailing out Goldman Sachs and other Mortgage backed securities packagers, derivitive players, etc. and creating money to do it, etc.

  41. Just Some Random Guy says:

    A few weeks after 9/11, I leased a car for practically nothing. The salesman was begging me to drive it off the lot. He would have given me his first born if I asked for it. In 2009, I didn’t buy one (and I still kick myself for it), but Porsche was giving away new 911s for more than 30% off MSRP. Which for Porsche is unheard of. If you get 10% off MSRP these days you’ve scored the deal of the century.

    However, as I mentioned here earlier, I’m in the market for a truck and dealers are basically saying this is our price, take it or leave. And the price is the typical Big 3 discount of 10-15% off MSRP. No extra incentives, no extra rebates. Nada.

    So until I start seeing 30% off sales on trucks, at a minimum, I’m not buying into the “we’re heading into a depression” talk.

    • Jdog says:

      Really? That is your economic crystal ball? Good luck in the future.

    • Iamafan says:

      I noticed you mentioned you “LEASED” the car. I reckon most of the new initiatives nowadays will be temporary delay of payments, or lower interest, or the like. Not sure the actual price of the car is being discounted a lot.
      Nevertheless, people should really think about whether they NEED a car or to replace what they have. Than extra discount is not going to make me need anything more than what I already have. If anything, I want to get rid of things.

      • Just Some Random Guy says:

        Leasing is still buying. Instead of you buying, the leasing company buys and rents it to you for 2 or 3 years. The deal still depends on what he dealer ultimately sells it for. Lease money factor and residuals right now are great, close to 0% apr. But dealers are not budging on price so lease deals are not there. At least not for what I want to drive,.

        I agree there are incentives like 90 days deferred payments which is stupid since it just pushes off 90 days the full price.

        I personally don’t NEED to replace my truck. I have a 2017 with barely any miles on it. But I WANT a 2020 version of it. The warranty is about to expire for one, and the body style has changed between 2020 and 2017 and I want the newer one.

        I’m generally very tight with money. Cars however are my blind spot. I understand I could drive a 7 year old 4 cylinder 30 MPG Accord and save thousands of dollars a year. But I drive a new full sized truck and have a constantly changing group of fun cars in the garage. All impractical and horribly expensive to maintain.

        But so what? I can afford it and life is short. We all have to find enjoyment in it. Taking a drive in a sports car in the mountains on a sunny spring day is worth 10X more to me than the savings I would get owning the Accord.

    • VeteranVNvet says:

      2009 I got a brand new 2007 3/4T 4×4,for 1/2 the 07 MSRP.
      Patience is a virtue, at least some of the time.
      Sure, ”this time may be different because auto manufacturing has stopped almost everywhere, for now…
      Sooner, rather than later, it will start again and due to the massive job losses alone, there will be an abundance of very good deals, likely somewhat close to cost of manufacture.
      Otherwise, we will be in such a deep hole/depression that folks will be giving away vehicles once again.
      Patience!

    • noname says:

      I think all your money leaves you disconnected from reality.
      New trucks are 24% off in my locale.
      20% off a new truck is EXPECTED in the good times.
      Truck-price discounting % is not a good indicator of a depression.

      P.S. They likely aren’t budging on price in anticipation of C4C 2.0

      # Bailout nation.

      • Just Some Random Guy says:

        That 24% is a myth, accounting for rebates that are niche specific. $500 for belonging to this or that group, $1000 for being a left handed military vet, etc. Those are the advertized prices you see. They’re non-existent for 99.9% of buyers.

        Take a $50K truck and your buying price is $42/43 right now for 95% of the public.

        Once the true buy price is $35K, then I’ll know we’ve hit hard times.

        • noname says:

          A myth? I calculated the discount myself. It’s an “everybody” price.
          I just calculated another dealer’s discount and it’s 29% off—33% off for all the first resp, military, etc.
          So, according to your estimation, we are in Depression talks.

  42. Crush the Peasants! says:

    My investment accounts are down 11% versus over 30% before this massive intervention. MORE COWBELL!

    • cesqy says:

      Start comparing your stock losses to the DXY and gold price instead of in absolute terms. It might dampen the financial noise your cowbell is making as it oscillates.

  43. Seen it all before, Bob says:

    IMHO, lenders who give mortgages to borrowers who don’t even have 2-3 months of payment reserves should go out of business. These borrowers should not be allowed to borrow again unless they can prove they have 1 year of reserves. Incentives to borrowers to not even try to borrow again unless they are fiscally responsible.

    Similar to a stress test on banks. Lenders should have been doing this all along.

    • Seen it all before, Bob says:

      The reason I bring this up is the last time I refinanced, the lenders did not have any interest in the money I had saved. They were only interested in the income I made for the last 2 years.

      Here it is 2020. 12 years past the last crash. With unemployment low, most had been making enough to qualify for a loan based on income, but few, unfortunately, have enough savings to pay one month in mortgage payments in their savings.

  44. Shawn says:

    So it looks like some services may not make it. What about Fannie Mae and Freddie Mac, could they go under? Looks like the fed is doing a wait and see attitude on this as more forebearance data comes in. I’m wondering what the final tab will be to bail all this out.

    “The MBA, which represents firms such as Quicken Loans, SunTrust Mortgage and Regions Mortgage, wants the Fed to move quickly because a facility may take weeks to implement after a decision is made. ”

    “Mark Calabria, director of the Federal Housing Finance Agency, said that Fannie Mae and Freddie Mac, the government-run entities that guarantee payments on roughly 50% of home loans, don’t have enough capital to bridge the liquidity gap either. “

    • KurtZ says:

      Learned some things from my bankster neighbor yesterday.

      ‘Member these banks, they ONLY deal in real estate, nothing else BECAUSE that is the only bidness in ‘muhrica that banks have dealt with since the GFC of 2008.

      Her medium-to-small regional bank just got a chunk of the SBA bezzle, somewhere around $250 mil/ that they spent all week distributing.

      One client got $100 mil of it.

      Talk about self-dealing. The bank basically gave a huge RE builder/dev. firm a hunny cuz they were into said bank for at least that much.

      Bank bailed itself out.

      That’s how the banks are gonna distribute the SBA handouts. Wait until THAT scandal breaks.

      Second thing I learned is that the JUMBO loan market is dead. Nobody out there is running that loan program/scam anymore.

      What that means is everyone with property on the Left Coast – your house/CASTLE is not worth a million dollars anymore.

      Two insults have been handed out to THAT crowd – Zillow is DEAD

      You just took a huge haircut on whatever property you’re in. (Neighbors only chat about the ‘Rona AND how their house prices on Zillow made them millionaires anyways. One thing less to talk about)

      Now everyone’s house, at least temporarily, is worth at most 900k. A touch more of Bernie champagne Socialism.

      Everyone is sorta rich and sorta high-minded together, all these fake millionaires looking down their noses at their fake billionaire TV president.

      A perfect snapshot of America.

  45. K says:

    Power move to force the trade of emergency funds for regulation?

  46. Bobber says:

    As long as the Fed has the ability to keep interest rates low, don’t expect huge drops in asset prices. Anybody who sells in a panic wakes up the next day worried about their cash being inflated away. They then go buy a different stock, encouraged by a little FOMO.

    People aren’t going to stop buying stocks, but they will switch to stocks with better balance sheets. Look at what happened when the Fed announced it was going to buy debt of companies that lost their BBB rating. These stocks exploded 10-50% higher. They suddenly had better balance sheets because the Fed said so. This is also a huge indication that “follow the Fed” is still very much alive.

    My prediction is stocks will have decent support, because of continued financial repression, until there are signs of inflation, which raises the spectre of higher interest rates. At that point, it’s game over, but this may take years to unfold. It would happen a lot sooner if the government gave more than $1200 beer money to the general population. But the government would never do that knowing consumer inflation would pop the bubble.

    The Fed and the government think they have to stimulate the wealthy, as opposed to the masses, under a trickle down theory, which they believe drives production and supply before providing any benefits to workers. This keeps consumer price inflation under control. The presumption here, mistakenly, is that businesses will actually invest the money but, as we’ve seen, they prefer to pay dividends, conduct stock buybacks, increase bonuses, and avoid any real investment. The large corporations have decided they have zero use for that additional stimulus money, with their oligopolies intact and spitting cash all over.

    In hopes of solving the problem, the Fed and government stubbornly throw more and more money at big business, hoping some day they’ll make a tangible investment. Of course, this is like trying to keep broccoli in an over-fed three year old’s mouth. They’d rather spit it out and laugh at you.

    • a reader says:

      I generally agree with what you wrote, with one exception: corporations refuse to invest the money because there are hardly any areas left where the money can be meaningfully invested.

      There is no real areas for growth left, and so financial tricks to the rescue.

      • Bobber says:

        Well, then it’s time to break up the oligopolies and put a halt to mergers, in order to create some competition and related investment. When you have a cash flowing oligopoly, you want to do nothing.

        • Broker Dan says:

          Well, the treasury is now throwing $350 billion, with probably another $500 billion at small business via the PPP that started last week.

          That’s a much better idea than the $2T they spent to get $1200 to people. Unfortunately, the execution is horrendous so far.

          Guess they don’t really know what to do bc this isn’t a simple recession fight, this is a majority of the economy ceasing functioning and commerce.

          Uncharted waters….

  47. RedRaider says:

    Let me preface what I’m about to say by saying I don’t know what the hecks going on. Just in case there was any doubt in your mind.

    I think what we may be witnessing is the death of Globalism. But they’re not going down without a fight. The recent stimulus package is first and foremost a bailout package for the international megacorp crowd. You can throw in the likes of big business, big government, big labor( what remains of it). But it’s more than just about bailout.

    I think they’re prepping for an assault against small business. They want the small business market share – all of it. They probably think once they have that their problems are over or, at least, they have to try it to survive. But I think once small businesses disappear they’re going to learn they have done such extreme damage to the underlying economy that nothing survives. Then once globalism has died the small businesses can make a reappearance.

    I think the level of oppression in the 20s is going to be huge. The only thing the people can do is batten down their hatches and ride it out. The only ray of hope I see is things are happening so fast these days that the above process may take only a year or two instead of a full decade. Keep in mind you don’t need to engage these forces to win you only need to survive them.

    Yup, I’m a doom and gloomer. Please feel to ignore the above :-)

  48. brent says:

    Can I assume that forbearance is only allowed for primary residences? It wouldn’t be fair for investors/speculators to get such deals.

  49. Sound of the Suburbs says:

    In the 1980s, it looked as if Japan would take over the world, but bad financial practices have seen their economy flat-lining ever since.
    Japanese companies found they could make more money from their financial arms (Zai Tech) than they could from their traditional businesses, for a while anyway.
    House prices always go up and their real estate boom would never end, until it did.
    Jusen were nonbank institutions formed in the 1970s by consortia of banks to make household mortgages since banks had mortgage limitations. The shadow banks were just an intermediary put in place to get around regulations.
    Look familiar?

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