As Unemployment Claims Rise, So Do Missed Mortgage Payments

Mish

Over 22 million people have filed for unemployment benefits in the past 4 weeks. Many struggle with payments.

Black Knight reports More than 2.9 Million in Forbearance, 5.5% of All Mortgages

Key Details 

  • As of April 16, more than 2.9 million homeowners – or 5.5% of all mortgages – have entered into COVID-19 mortgage forbearance plans
  • This population represents $651 billion in unpaid principal and includes 4.9% of all GSE-backed loans and 7.6% of FHA/VA loans
  • At today’s level, mortgage servicers would be bound to advance $2.3 billion of principal and interest payments per month to holders of government-backed mortgage securities on COVID-19-related forbearances
  • Another $1.1 billion per month in lost funds will be faced by those with portfolio-held or privately securitized mortgages

Forbearance Totals

Black Knight Forbearance Totals 2020-04-16

Payment Forbearance Under Cares Act

On March 27, 2020, President Donald Trump signed the Coronavirus Aid, Relief, and Economic Security Act (also known as the CARES Act) into law. A provision of the CARES Act allows borrowers with federally backed mortgages to request temporary loan forbearance for up to 180 days. Borrowers also have the right to apply for an extension of another 180 days of forbearance.

Once a borrower requests hardship forbearance due to the COVID-19 pandemic, the act requires the servicer to offer a CARES Act forbearance. 

Pitfalls 

Forbes warns of Mortgage Forbearance Pitfalls. 

John Ulzheimer, an Atlanta-based credit expert formerly of FICO and Equifax, warns of a potential balloon payment.

"If the lender or servicer demands that you pay back the deferred amount all at once or in an otherwise expedited manner, that could be impossible for the borrower.”

Unfortunately, having a mortgage servicer ask for a “balloon” payment once your forbearance period ends is a very real possibility. Borrowers from multiple national banks have reportedly been informed of the need to repay any delayed payments in a lump sum at a future date.

Three Things Not to Do

  1. Don't apply for forbearance if you don't need to.
  2. Make sure you understand the terms being offered. A huge balloon payment at the end could do you in.
  3. Don't pay your mortgage with a credit card. The interest rates are outrageous.

Very Ugly Setup

Over 22 million people have filed for unemployment. I discuss the numbers in With Over 22 Million Claims, What's the Unemployment Rate?

The unfortunate answer is around 18%. That is a bit better than my earlier estimates of 20-22%. But it may be a bit optimistic. 

Some states will be much worse. For example, Over 25% of Michigan Workforce Filed For Unemployment.

A recent number crunch on Michigan yields an unemployment rate of 24%-29%, truly a disaster. 

No V-Shaped Recovery

Add it all up and you should quickly arrive at the correct viewpoint: The Covid-19 Recession Will Be Deeper Than the Great Financial Crisis.

Mike "Mish" Shedlock

Comments (64)
No. 1-18
SteveVT
SteveVT

and I am refinancing, great timing, huh? My job is totally remote, my wife and I own a company that works with builders/developers and the post office, her office is open as essential via the Feds. This whole lock down thing is overblown. The infection penetration is far higher than officials are admitting. The death rate is similarly overstated and is lower. When the whole picture is in focus, many public officials are going to look really stupid, if not criminal

Mish
Mish

Editor

Death rate is way understated and the impact of distancing way understated too.

But people will believe what they want.

Sechel
Sechel

I have some familiarity with the mortgage market. Wondering how delinquencies compare with post 2008. I suspect the lender will not ask for the deferred payment at the end of the grace period which would in too many cases guarantee default. I"m not familiar with the details of the CARE act but if 2008 is any guide what we're likely to see is a recapitalization of the loan with payments including interest added back to the balance. If the loan is deemed underwater they may get more creative and treat the missed payments as a deferred balance that no longer accrues interest and gets paid back if the home is sold or the loan matures , which ever comes first. If the borrowers are already having problems I'm guessing we're not talking prime borrowers but more Alt-A type credit and Alt-A is not as good as it sounds typically. Sub-prime market hasn't really come back so I doubt we're dealing with the worst garbage of the 2005-2008 era

tokidoki
tokidoki

So you are telling me stocks will rally to 100K?

Ok I guess.

Sechel
Sechel

I suspect you will see borrowers skip their mortgage payments while paying the minimum on their credit cards. Seems backwards but people have learned it takes a while for a bank to foreclose and they need that credit card to buy groceries. Also if borrowers believe their house is now worth less than their mortgage they will simply stop paying as well. The borrower is long a put feature on the mortgage and its clear they will exercise it if they perceive no equity in the property. We still don't know how this pandemic will impact real estate pricing.

Tengen
Tengen

A new housing crisis should add about 2K to the Dow this week.

Since up is down in this brave new world, the BLS should stop doctoring unemployment stats. I figure every percentage point increase is good for at least 500 points!

Jojo
Jojo

This may help with all the numbers being tossed about!

Garbage Math

AussiePete
AussiePete

Mish, I see that Professor Steve Keen has been calling for a general rent and mortgage payment "strike" - any comments on that? He has also renewed his advocacy for a debt jubilee taking the form of a government payment to everyone, with the proviso that the indebted must apply the money to the debt

Jojo
Jojo

Saturday, April 18, 2020
Unemployment To Soar As Small Business Firings Start
Posted by Bruce Wilds
18 Apr 2020

The Paycheck Protection Program or PPP was funded with $350 billion in the last stimulus bill, this money is now gone. Of the thirty million small businesses in America, only 1.7 million received money from the 2.3 trillion dollar aid package passed to help sustain America during this difficult time. If the government blew through this money and was only was able to help only around 5% of small businesses it is difficult to think another 250 billion dollars will set things straight. Clearly, because the government made promises it delayed the wave of firing while companies waited for help.

The government has failed to keep its promise so now we should expect unemployment to soar as reality sets in. One of the largest problems facing small companies is they are often underfunded and have difficulty getting financing at reasonable rates. Banks find larger companies much more profitable. The sector of the economy most damaged by the covid-19 shutdown is small business. When this is over America will find many small businesses have been decimated and are not able to reopen. Others will never recover and be forced to close within months. Since small businesses employ over 54 million people in America and their importance in the economy should not be underestimated.

Greggg
Greggg

Bill and Melinda's https://www.youtube.com/watch?v=6TffC_aPLwU

wootendw
wootendw

With covid and mortgage delinquencies, I expect anyone carrying covid, especially the elderly or persons deemed not 'essential' to society, will eventually be herded into now-empty stadiums or other large facilities for holding people.

The government will seal the doors shut and come back in a couple years to bury them.

Silver2020
Silver2020

How Long will a 2 trillion dollar stimulus package last? The US GDP in 2019 was 21 trillion dollars or about
1.75 trillion a month! Let's say with the he stay st home orders and most of the economy shut down, GDP drops 50% or 0.875 trillion a month starting in March. So 2 trillion stimulus will cover about 2.5 months worth of the decline in GDP. That means if there isn't another stimulus package by mid may the economy will start to freeze again and the stock market would take another dive south. If the economy opens up gradually or 20% in June, then a second wave of stimulus might cover 500 billion short fall a month instead of 875 billion, so an additional 2 trillion might cover 3-4 months worth of GDP shortfall and be enough till October 2020 before a 3rd round is needed.

Any delays and the stock markets could drop quickly.

Based on the inverse head and shoulders in the SPY between the 217 lows on march 26th and the neckline breakout at 265 on April 6th, projecting an upside target of around 313 sometimes around Friday May 8th based on the angle of ascent!

If Congress does not act quickly, the drop would be quick and in a worst case scenario if there are additional delays, the SPY could fall to the 2014 support area around 191 before we see a meaningful rebound.

Casual_Observer
Casual_Observer

September 24. Mark that date on your calendar. Hear me now and believe me later.

shamrock
shamrock

A lot of people are making more money on unemployment payments than they did working. In addition to more people being eligible (self employed, gig workers) people get paid their normal benefit + $600/week. If you were making $12/hr that would be $480/week. You unemployment benefit is around $800/week. Work is for suckers.

numike
numike

we may never have a covid 19 vaccine
Don’t bet on vaccine to protect us from Covid-19, says world health expert
Professor of global health at Imperial College, London warns we ‘may have to adapt’ to virus

sangell
sangell

I read a story out of Detroit a week or so ago. Small auto parts supplier with 50 fuloughed employees was being pressured by the auto companies to get production going again. His problem few of his employees were willing to return to work out of health concerns and the fact that unemployment plus that temporary $600 weekly stipend made staying home, at least for the short term, easier if not more lucrative than going to a $12/hour job.

Silver2020
Silver2020

So which is more important health or money for the older rich establishment ruling class ? If the goverment does not pay to keep all of us safe young and old, then the death rate could be much higher, and 90% of the ones dying are the establishment class both Democrats and Republicans over 65 years of age! They have older children and grandchildren that will get infected and pass on the virus to them if they go back to work. Unless the affluent older generation self isolate from their families till a vaccine is produced which could take 18 months to 3 years, that's gonna bring a whole of loneliness, depression
and misery. The older people money cannot buy them companionship and in person human interaction from there younger immediate family with Covid 19 around unless everyone is safe!

Covid 19 might show the older neoliberal capitalist, a predatory, extracful, wasteful and polluting economic system, a thing or two about what is really important in life...ie supportive, nurturing, loving, caring and empathetic to ALL of humanity and our home mother earth.

MG53
MG53

What’s up with the Repo Markets?

I’m sure most of you that follow Mish are aware that issues with Wall Street began on September 17th, 4 months before coronavirus...

On Oct 8, at a speaking event in Denver at the National Association of Business Economists, Fed Chairman Powell “acknowledged that a larger, long-term bailout of Wall Street is coming...”

This raises the question, under what pretext would the Fed / Government have rolled out a bailout if not for coronavirus?


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