One ongoing theme from these notes is that the COVID-19 crisis is resulting in policy actions that impact behaviors across the MBS production pipeline. One of these has to do with a change in the loan buyout policy from pools issued by the GSEs. Previously, general policy was to purchase loans out of pools that had become four months delinquent. However, with the onset of the crisis, delinquent loans in forbearance programs remain in pools as long as this status is maintained. Consequently, last week’s release of pool data by Freddie Mac gives us the opportunity to look at the share of loans that are 120D+DQ (as April was the first month in which the impact of COVID-19 became significant).
Besides allowing us to track the magnitude of loans that have been delinquent for an extended period, this data allows us to make inferences about shifts in the composition of the burden of covering P&I costs between sectors for loans in forbearance. As we have written previously, this cost burden shifts from the servicers to the GSEs after four months of missed payments. Consequently, starting next month servicers will see costs related to loans that have missed payments for such a period move off their plates and onto those of Fannie Mae and Freddie Mac.
Insofar as the volume of loans beginning to miss payments is less than those which have missed more than four months payments, the aggregate cost burden on servicers may fall. Consequently, upward pressure on the mortgage spread over Treasuries may have scope to ease.
Of course, these costs don’t disappear; they merely get transferred to the taxpayers. Another potential flashpoint in our volatile age.
 See, for example, Appendix D, p. 3 http://www.freddiemac.com/mbs/docs/single_security_update.pdf
 See p. 8 http://www.freddiemac.com/mbs/docs/single_security_update.pdf
Freddie Mac started to release forbearance data on its STACR CRT program in the July reporting cycle. Previously, the GSEs disclosed only pool-level delinquency and forbearance information . As the loans in the STACR program have a UPB representing over 50% of total deliveries to FHL balances with no obvious state level bias, they would serve as a representative sample in calculating GSE state level delinquency . Similarly, the new STACR data is helpful in assessing the impact of the COVID-19 crisis on forbearance at loan level.
From the July STACR data release, we can see a clear correlation between total delinquency rates and forbearance rates at state level. States with higher delinquency rates, such as New York, New Jersey, Hawaii, and Nevada, also have higher forbearance rates.
*The Chart can be duplicated using the above two queries
This is not a surprise as we noted in an earlier post that Freddie Mac servicers are not required to report loans in forbearance if loans are current . In fact, for STACR data, only 0.95% of current loans are in a forbearance plan, but the forbearance rate for loans in 30 day delinquency, 60 day delinquency, and 90+day delinquency are 30.64%, 92.98%, and 92.12 % respectively.
Two data releases Monday night paint a picture of hyper-kinetic refinancing activity and new deterioration in GSE credit performance. First, all three agencies released prepayment data for June showing record refinancings, led by Ginnie Mae programs which skyrocketed by over 10 CPR to 37! This is a much greater increase than experienced by both Fannie Mae (+3.4 to 30.9), and Freddie Mac (+3.2 to 32.0). A significant portion of GNM CPR’s increase could derive from elevated involuntary prepays (CDR), quite possibly driven by the very recent change made to GNM pooling rules regarding reperforming loans.
Earlier this month we discussed the new pool-level forbearance and delinquency data released by the GSE’s. At that time, we noted that the delinquency data looked reasonable for May, but that the forbearance data fell short of other reported measures, particularly for Freddie Mac.
The release of the Ginnie Mae loan-level forbearance data earlier this week enabled us to see the impact of the Covid-19 crisis on forbearance.
An immediate question is how this data relates to delinquency. We have commented previously that forbearance and delinquency are distinct concepts as borrowers may choose to enroll in a forbearance program as an option to stop paying their mortgage on short notice in the future. The pool level data released earlier this month by the GSE’s is not of high quality and showed forbearance rates less than those released from other sources.
The Ginnie Mae loan level data appears to be very accurate, and in synch with other reports. Within the category of forbearance loans, 27.9% of Covid related are still paying. The portion for not Covid related is 15.5%. This result provides confirmation that a significant portion of borrowers have availed themselves of the option to stop paying without exercising it yet.
We received loan-level forbearance data from Ginnie Mae for May earlier today. The data are of high quality and appear to be broadly in line with the data reported by the Mortgage Bankers Association for the month of a little over 11% (no breakdown by program is given). The data appear to be a much better representation of market conditions than the pool-level data released by the GSE’s earlier in the month.
As this data is on the loan level, we can look at the relationship between this and delinquency data by state level geography and other characteristics such as bank/nonbank and underwriting characteristics and we will provide some analysis of this sort in upcoming posts.
We received delinquency and forbearance information for the GSE pools late last night. By balance, the pools with such information cover over 99% of FHL and 92% of FNM pools, which is satisfactory.
In terms of delinquency, Fannie Mae reported higher delinquency rate than Freddie Mac, which is in line with the relatively higher DTI’s seen in FNM deliveries in recent years. Freddie’s 30d delinquency rate reported in May was 2.47%, about 0.4% below the same figure for Fannie Mae .
The loan-level data releases we receive early each month contain delinquency data for Government programs such as FHA and VA, but no such information is provided by the GSE’s. However, late in the month data is provided for the reference loans in the Credit Risk Sharing (CRT) programs. However, data for the most recent month is only provided by the Freddie Mac Structured Agency Credit Risk (STACR) program as the comparable Fannie Mae data is released with a 1-month lag. The latest STACR data shows the 30day delinquency rate for Freddie CRT pools went up from 0.76% in April to 4.20% this month. The states with the highest delinquency rates are:
And the states with the lowest delinquency rates are:
The state rankings are broadly in line with those observed in the Government data. For example, the top three states in terms of 30-day dq’s for the FHA program are New York (14.4%), NJ (13.9%) and Puerto Rico (13.2%). In general, DQ’s for FHA are higher than those for the GSE’s due to the broader credit criteria available in Government programs.
Delinquencies are important in the CRT program because they have the potential to turn into losses shared with private investors. The forbearance programs will delay but not completely prevent this transmission. The ultimate extent of investor losses depends on the duration of the Covid-19 crisis, and ensuing policy actions.