One of the many recurring themes of these posts is that the shock of the Covid-19 Pandemic and subsequent policy response has resulted in structural changes in behavior that cause loan performance metrics to shift compared to the pre-crisis world. An interesting example of this can be found in the performance of modified loans in Ginnie Mae programs.

Modified loans in these programs are those that have been purchased out of pools by servicers that are past due that subsequently have features such as rate and term adjusted in order to bring households back to a current status. These are then often resecuritized into a new GNM pool.
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• Securitization of modified loan volumes more than doubled after the pandemic

The Covid shock of course has resulted in a surge in delinquencies and triggered large volumes of buyouts and modifications. Below find a plot of the share of modified loans of total new issuance for FHA and VA programs since January 2020:

​The release of loan-level dq data by the GSEs opens the door for much new analysis. In today’s blog we will look at servicer type. Below find a table of average DQ’s for each available type, along with average levels of underwriting characteristics:

It’s interesting to note that banks tend to service loans with a modestly higher total DQ rate than the “Nonbank Other” category. The table also shows that banks have a tighter credit box with respect to credit score (higher) and DTI (lower) than nonbanks but have a more generous appetite for higher LTV loans.
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The data also presents financial analysts and strategists with a great deal of information about the performance of individual institutions. As an example, we look at the 100 largest servicers from the bank and “nonbank other” category (known as “nonbanks” from now on). There are 43 banks and 57 nonbanks in this group. The charts below plot total DQ’s vs credit score and DTI for each servicer type. Comparing different points or a single point vs trend lines can provide useful insights regarding the competitive landscape.

​Of course, these charts just scratch the surface of what is possible here.

​On Tuesday February 23, FHFA released its monthly purchase-only HPI for December, showing a 1.1% rise from the prior month, and a striking 11.1% increase from December 2019, the record-high annual growth rate reported since this data was first released in the early 1990s.

​Assigning letters to economic recoveries (“V”, “L”, “U” etc.) has become a standard part of the economist’s toolkit for expressing a view on the nature of a particular forecast. The Covid-19 crisis has added a new letter to the lexicon, “K”. In a “K-shaped” recovery, some segment of the population experiences relatively strong growth, while others are left behind. Since housing tenure is an essential determinant of the distribution of household wealth, it is not surprising that we can clearly see this shape in the relative trends in house prices versus rents:

While the single-family housing market is booming, the trend in the multifamily market is much more nuanced. Over the 3 ½ year period from July 2017 to December 2020, new supply as measured by housing starts was in a steady-to-modestly rising trend. This changed with the onset of the Covid-19 pandemic:

In prior posts, we have pointed out the tight relationship between unemployment and mortgage delinquency[1]. This note extends this analysis by looking at this relationship at particular durations.
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Every month, the Bureau of Labor Statistics releases data on the “Duration of Unemployment”[2]. For example, below find a table containing data for the number of unemployed people in before, during and after the shock associated with the onset of the Covid-19 crisis by how long they have been unemployed.  

As we head into 2021, an ongoing issue is the disposition of loans in forbearance. The Cares Act allows for borrowers negatively impacted by the Covid-19 pandemic to obtain forbearance up to 1 year[1]. This will begin to expire in Spring 2021, although an extension is possible as the new Administration takes over in January. A key point is that forbearance is not forgiveness. The mortgage agencies have provided options for borrowers who become current after forbearance, so they don’t have to make a lump-sum payment for missed principle and interest.

FHA has designated its policy regarding the disposition of suspended payment amounts as COVID-19 National Emergency Standalone Partial Claims[2](COVID Partial Claim).
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“The COVID Partial Claim puts all suspended mortgage payment amounts owed into a junior lien, which is only repaid when the homeowner sells the home, refinances the mortgage, or the mortgage is otherwise extinguished.”

Unlike the situation during the Global Financial Crisis, imbalances in the housing market are not the root cause of the Covid-19 economic downturn. Instead, housing is helping to pull the economy out of its pandemic-induced swoon. House price rises have accelerated, due both to low interest rates, as well as to household relocations away from high-density areas. This is leading to increased construction, and improved household balance sheets. Moreover, a surge in refinances improves household cash flow. How long can this trend continue?
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The answer to this question depends crucially on many varied policy settings that influence lender and borrower behavior. The chart below shows 1-month CPR for 30-yr MBS securities broken down between the 30-Year GSEs and 30-Year FHA for the 2017cohort. A number of fundamental and policy factors come into play.