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The Covid-19 Virus has clearly had a devastating impact on the jobs market in the US. Over the past four weeks, over 22 million people have filed for unemployment claims. This number has grabbed the headlines, but to get a more accurate sense of perspective on the problem it is best to look not at new claims, but instead at the stock of people who are receiving benefits, and then scale this by the size of the labor force. This concept is referred to as the “insured unemployment rate”[1], which was first reported in 1971. This figure reached an all-time high of 8.2% in the week ending April 4, greater than the peak during the global financial crisis of about 5% and the all-time peak near 7% in the mid-1970’s.
The Credit Risk Transfer (CRT) market was launched in 2013 by the GSE’s to help protect taxpayers from credit risk (risk of borrower nonpayment) by sharing mortgage losses with private investors. The market has grown substantially since that time, with the outstanding balance of reference loans reaching over $2 trillion at the end of 2019. Over this time, investors have largely been rewarded, as home prices have continued to rise and labor market conditions have been robust. Chart 1 shows these for the sixteen most recent high loan-to-value (LTV) Fannie Mae deals from their CRT program Connecticut Avenue Securities (CAS). 1. Cumulative Default Rate for CAS Securities  Preparing for the Delinquency Storm — Using Big Data to Track Portfolio Risk in the Mortgage Market3/27/2020
As US society goes deeper into “Shelter in Place” and “Social Distancing” to protect itself from the COVID-19 virus, jobs are being lost at a rapid pace. Jobless claims in the United States for the week ending March 21 came in at a record high 3.28 million. In turn, household finances are being stretched around the country. Fiscal stimulus and various debt forbearance plans can help to mitigate the damage, but families will have to make decisions about how to allocate scarce resources based on their own priorities.
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