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Monday, August 10, 2020
Signage stands outside the Freddie Mac headquarters in McLean, Virginia, U.S.. Andrew Harrer | Bloomberg | Getty Images As the economic shutdown drags on and job losses mount, more borrowers are opting to delay their monthly mortgage payments through mortgage forbearance plans. The majority are doing it through a program designed to provide relief to holders of government-backed home loans, part of the coronavirus CARES Act relief package. Just over 3.4 million borrowers, representing 6.4% of all mortgages outstanding, are now in forbearance plans. That's an increase of 477,000 loans in just one week, or a nearly 9% jump, according to Black Knight, a mortgage data and analytics firm, which is running weekly tallies.   These forbearances represent $754 billion in unpaid principal. They include 5.6% of all loans backed by government-sponsored enterprises Fannie Mae and Freddie Mac and 8.9% of all FHA/VA loans. At the current level, mortgage servicers are required to advance $2.8 billion of principal and interest payments per month to mortgage bondholders of government-backed loans. On Wednesday, the Federal Housing Finance Agency, which regulates Fannie Mae and Freddie Mac, announced the servicers would be bound to make these payments for 4 months. Fannie Mae usually requires payments be made for up to a year. Regardless, servicers of GSE-backed loans could still face more than $7 billion in advances, given the number of loans in forbearance thus far. Some said the move is not enough help for servicers. "While this news reduces servicers' worst case cash flow demands considerably, we continue to call on the Treasury and Federal Reserve to provide a liquidity facility to ensure that servicers can continue their important work of advancing missed payments to investors as well as paying property taxes and insurance premiums on behalf of struggling borrowers," said Bob Broeksmit, CEO of the Mortgage Bankers Association. For FHA loans, Ginnie Mae has already set up a liquidity facility to give servicers relief. Not all loans in forbearance are government-backed. About 740,000 loans either held on bank balance sheets or in private-label securities are also in forbearance plans. This represents $207 billion in unpaid principal balance. The majority of these loans are higher cost, so-called jumbo loans. The tally is expected to rise, along with job losses. Borrowers have faced only one monthly payment since the full economic shutdown.
Sales of both newly built and existing homes tanked in March, as potential buyers hunkered down and potential sellers pulled their homes from the market, both watching their economy in free fall from the coronavirus. Now, suddenly, buyer demand at least may be climbing back. Pending home sales, which measure signed contracts, not closings, are about 32% lower annually now, according to research by Zillow. But the week-over-week change in pending sales turned positive in the week ending April 15. Pending sales were up 6.2% week-over-week as of the seven days ending April 19. Zillow also noted that web traffic on for-sale listings and requests to connect with real estate agents have grown in recent weeks as well. While web traffic to Zillow listings in some markets is still way down from a year ago, the national total jumped 13% annually for the week ending April 13. In 30 of the 35 largest metro areas, web traffic to for-sale listings was higher annually during the second week of April. Traffic was still lower in Pittsburgh, Detroit, Philadelphia, Boston, and New York City. It's too early to fully understand why interest in buying homes has bounced back so suddenly. People may just be getting more bored at home and are interested in seeing if there are any great deals on homes in their areas. It could, however, reflect potential homebuyers and sellers responding to some relatively good news, according to Zillow economist Jeff Tucker. Those may include the U.S. seeming to begin to flatten the curve of Covid-19 infections, as well as a strong stock market rebound in the previous couple of weeks. In addition, more people are learning about how the housing market is quickly transitioning into virtual operation. Home tours have gone online, with live agent showings. Home inspections, appraisals as well as closings, in some states and at certain price points, now can also be done virtually. That was not the case just a month ago. In addition, home values have so far held, which makes the investment seem less risky. "Real estate transactions and new listings have declined abruptly amidst the coronavirus pandemic, but we haven't yet seen prices significantly affected, " said Tucker. "Buyers have pulled back in the face of new economic uncertainty but sellers are also shying away from listing their homes in a market that was already starved for inventory, so it is possible that home prices remain insulated, at least in the short-term. Like a canoe being carried by two people who drop both ends simultaneously, the market slowdown may not tip clearly in favor of buyers or sellers." In a weekly survey, 74% of agents said their clients have not reduced listing prices to attract buyers, according to the National Association of Realtors. There is clearly no panic selling, despite the uncertainty in the overall economy. "Consumers are mostly abiding by stay-in-shelter directives, and it appears the current decline in buyer and seller activity is only temporary, with a majority ready to hit the market in a couple of months," said Lawrence Yun, NAR's chief economist. "Given that there are even fewer new listings during the pandemic, home sellers are taking a calm approach and appear unwilling to lower prices to attract buyers during the temporary disruptions to the economy." A similar report from Redfin, a real estate brokerage, showed buyer demand recovering slightly. It compared the daily number of homebuyer inquiries now, regardless of whether the buyer used a Redfin agent or one of its partners, to the average in January and February, seasonally adjusted. For April 13 to 19, buyer demand was down 19% from pre-coronavirus levels, an improvement over the 34% drop in early April. New listings, however, are still way down. In an April survey of 216 prospective sellers, just one in five thought it was a good time to sell, down from one in two at the beginning of March, according to Redfin. At the end of March, existing home supply was at the lowest level in the history of the NAR's monthly survey. As for newly built homes, sales plummeted in March. Yet supply rose and it is now far above the still meager supply of existing homes. "Low mortgage rates and continued demand from the millennial generation should drive a rebound in housing activity later this year and into 2021," said Ben Ayers, senior economist at Nationwide. "With the inventory for existing homes expected to remain tight, there will be the opportunity for strong gains in new home sales again." Mortgage rates are low, but credit availability is still incredibly tight, due to the government's mortgage bailout. It allows borrowers with government-backed loans to delay up to a year's worth of payments if they have financial strain due to the coronavirus. More than 3 million borrowers are already in that program, and the risk to lenders is only increasing, which has made their underwriting far more strict. While some in the housing industry may want to believe in a quick bounce back, not everyone is so optimistic. Matthew Pointon, an economist with Capital Economics, recently predicted home sales could fall by 35% annually this spring compared with last quarter of 2019. That would mean total home sales of around 4 million annualized, the lowest since the start of 1991
Signage stands outside the Freddie Mac headquarters in McLean, Virginia, U.S., on Tuesday, Oct. 1, 2019. Andrew Harrer | Bloomberg | Getty Images The Federal Housing Finance Agency, regulator of Fannie Mae and Freddie Mac, announced that the two mortgage giants will now buy home loans that go into the government's forbearance program just after they close. Fannie and Freddie had not been doing that, and as a result, lending had tightened up dramatically. "We are focused on keeping the mortgage market working for current and future homeowners during these challenging times," FHFA Director Mark Calabria in a release. "Purchases of these previously ineligible loans will help provide liquidity to mortgage markets and allow originators to keep lending." Mortgage lenders, both bank and non-bank, sell most of their loans to either Fannie Mae or Freddie Mac, known as government-sponsored enterprises, or GSEs. Or, if they are backed by the FHA, they are sold to Ginnie Mae. It can take a few weeks after a loan closes for it to be sold. When the government's mortgage bailout, which started just over a month ago, some loans that had just closed but were not purchased yet went into forbearance. The forbearance program allows borrowers with economic hardship due to Covid-19 to delay monthly payments for up to a year. Those payments must be made at a later date. The CARES Act, which was signed into law late last month, does not require that borrowers provide any documentation or proof of hardship. More than three million loans are already in the forbearance program. Because Fannie and Freddie wouldn't buy the loans that had just closed, credit tightened up dramatically, making it harder to get a new loan for all borrowers. Lenders were afraid any loans they made might go into forbearance before they were sold, leaving them on the hook, unable to sell them. This announcement should loosen the market somewhat, although there are certain eligibility criteria and limits, according to FHFA: The mortgage loan must have closed on or after February 1, 2020 and on or before May 31, 2020. The loan must be a mortgage purchase transaction or a no-cash-out refinance The loan cannot be more than 30-days delinquent. In addition, eligible loans will be assessed an additional loan-level price adjustment – 5% for first-time homebuyers and 7% for non-first time buyers. There is disagreement, however, on what these higher costs could do to mortgage rates. Some say they could cause mortgage rates to fall slightly, as the credit box opens up more. Others say some lenders will pass those costs onto borrowers in the form of higher rates.  "We welcome the change in policy that directs the GSEs to purchase most loans in forbearance," said Bob Broeksmit, CEO of the Mortgage Bankers Association. "We looking forward to working with FHFA and the GSEs to arrive at more appropriate pricing and broad coverage for all transaction types."
Commercial real estate company Cushman & Wakefield recently introduced the Six Feet Office concept to showcase some of the ideas it envisions companies will be adopting soon. These include desks spaced 6 ft. apart, along with bold color and visuals such as circles embedded in the carpet to remind people to distance themselves. Cushman & Wakefield The battle between the states and the federal government is heating up about when to open the economy and start letting people go back to work due to the coronavirus. On Monday, Former FDA Commissioner Scott Gottlieb told CNBC that employers need to have specific plans in place for how to safely return workers to the office or shopfloor. "In an office, you could split your employees — have half of them work at home, half of them come into the office on alternating days," Gottlieb said on "Squawk Box."  He added: "You should continue to encourage telework where you can."  Exactly when employees will be heading back to work is still an unknown, but what is certain is that when it does happen, things at the office will almost certainly be very different. Just as the pandemic is likely to have a lasting impact on our personal habits, it will also change the way we work. Among the key changes companies are already considering: more space, sanitation and flexibility, with more employees working from home on a semi-regular basis. So how will all this be achieved? According to a number of office designers, companies will be installing more sensors to reduce touch points, such as on light and power switches and door handles, antimicrobial materials, more and better air filtration, temperature monitoring at entry points, desks that are spaced farther apart, plus subtle design features that remind people to keep their distance.  Transforming behavior through office design Over the past month, commercial real estate company Cushman & Wakefield has helped 10,000 organizations in China move nearly 1 million people back to work after the country reopened its economy after the pandemic. Cushman & Wakefield, which manages 800 million sq. ft. of office buildings in China, learned much from that experience. According to Despina Katsikakis, who heads Cushman's occupier business performance, the company used its learnings — along with World Health Organization data and the advice of medical specialists — to develop a concept dubbed the Six Feet Office, which it has already applied inside its Amsterdam headquarters. Through properly spaced desks and visual cues, such as bold colors and large circle designs in the carpet, the Six Feet Office concept will remind employees that 6 ft. must stay between people at all times. Katsikakis says the Six Feet Office concept is a prototype to showcase some of the ideas Cushman envisions companies around the globe will be adopting soon. The bold circles in the carpet in Cushman & Wakefield's Six Feet Office concept is designed to remind people to social distance. Cushman & Wakefield Katsikakis believes many employees will welcome these new changes. In recent years the amount of square footage allotted per employee has gone down from 211.4 sq. ft. in 2009 to 17.6 square feet in 2017, according to Cushman & Wakefield. This has led to widespread complaints about loud office mates and lack of elbow space.  COVID-19 is likely to halt this trend. Other changes she sees happening in China: staggered schedules to lessen occupancy in buildings, desks being moved farther apart and more barriers between desks. Cushman & Wakefield also sees more emphasis on sequencing people into elevators so they aren't packed in like sardines.  Another feature the commercial real estate company says to expect is an increase in signs instructing employees to walk in one direction in hallways, or clockwise in a meeting room, to ensure an orderly flow to foot traffic.  Some companies gearing up Making changes to accommodate social distancing at the office is already top of mind for many companies as talk of reopening the economy has started to reverberate here in the U.S. Among those that have already announced major changes are Marriott and financial services firm Discover. On Tuesday, Marriott announced the hotel chain will be using signage in its lobbies to remind guests to maintain social distancing protocols and will be removing or rearranging furniture to allow more space for distancing. The company is also considering adding partitions at front desks to provide an extra level of precaution for guests and associates and is installing more hand-sanitizing stations at the entrances to its hotels, near the front desk, elevator banks and fitness and meeting spaces. In addition, guests will be able to use their phones to check in, access their rooms, make special requests and order room service that will be specially packaged and delivered right to the door without contact.  According to Andy Eichfeld, chief human resources and administrative officer at Discover, once they are given the all-clear, employees will return gradually — and only if they are comfortable — to allow for safe distancing. There will be temperature checks for all employees at the door, and every other workspace will be closed off. In addition, traffic throughout hallways and stairwells will be one way only, and elevator occupancy will be limited. More emphasis on sanitation  Shared workstations have long been a hotbed of disease transmission, and the current pandemic is likely to change this trend. Designers say they expect the disappearance of shared keyboards and for companies to introduce clean desk policies with nonessential items stored in cabinets and drawers rather than on the desk to ensure proper cleaning and sanitation.  Designers say they are hearing more inquiries about disinfecting UV lights, which can clean not only equipment like keyboards but entire rooms overnight. Nicole Keeler, director of sustainability at interior design and space-planning firm Nelson Worldwide, said she's also fielding questions from companies and building owners about easy-to-clean materials.  "There's surfaces that are antimicrobial, just like you would see in a health-care system or in a laboratory," which could become a new norm for workstation surfaces, she said.  Nelson Worldwide's Philadelphia office. The interior design and space-planning foresees antimicrobial surfaces, like in a health-care system or laboratory," could become a new norm for workstation surfaces. Farm Kid Studios Another feature that could come into more common use: negative pressure rooms. Now used mostly in medical facilities or airport smoking rooms, negative pressure rooms could help contain germs in, say, a conference room, which can then be cleaned using UV light.  Enabling collaboration through design  Working from home has many perks, but one downside is that collaboration is difficult with limited face-to-face communication. A recent study from PwC showed that half of the businesses expect a dip in productivity during the pandemic because of a lack of remote-work capabilities.  In recent years, some companies have focused on making their spaces more comfortable in hopes of drawing people back. Companies "are literally trying to make their spaces more desirable to draw people back to the office because they do feel like there was a lot of that personal connection and collaboration," said Nelson Worldwide's Keeler.  Assuming more people will be working from home regularly in the future, "we will have more specialized spaces in the office," said Jeremy Reding, principal and global workplace leader at DLR Group, a firm devoted to sustainable design in areas including health care, hospitality, museums, schools and the workplace. Reding envisions rooms geared toward specific tasks such as small group conversations, as well as larger spaces for events and maybe even some rooms dedicated to virtual reality.  DLR Group's Hines T3 West Midtown building in Atlanta ©Creative Sources Photography/Rion Rizzo, courtesy of DLR Group "It's really tuning the room to the desired behavior," Reding said. For training, if there is one speaker, the room should ideally have acoustics to amplify that speaker's voice so everyone can hear well. If it's meant to be more social, "you want to set up the sound in there such that maybe you're not getting a ton of reverberation because that creates headaches," he said.  To control these factors, designers use various materials such as carpet, acoustic tiles or curtains. Many of these factors are common considerations in the hospitality industry but new to corporate office environments.    Conserving energy  After the crisis, some workers will likely continue working from home on a regular basis. To accommodate a more flexible workforce, companies have more reason to demand adaptive energy systems. Right now offices are designed to accommodate a certain number of employees on any given day. That means if only half of the employees show up on any given day, the energy usage is unlikely to change much, and the room may end up being colder than usual. Reding, who has been going into the DLR office in Seattle alone, said the office has been freezing. "Right now we're overcooling, and all downtown [Seattle] is probably overcooling because there's nobody in the buildings," he said. Current systems are not adaptive, but Reding sees the introduction of adaptive systems that can respond more effectively to changes in occupancy levels.  More room for tech collaboration  With more employees working remotely even after the crisis, companies will likely invest in more and better technology to connect more effectively with remote workers. A survey by Gartner found that 41% of employees  are more likely to work remotely at least some of the time post-pandemic. Eric Arnold, president of Arnold Contract, a New Jersey company that makes custom office furniture, said there's been growing emphasis on technology with some built right into the furniture. Conference tables today not only include electrical plugs for computers and other equipment but may also have built-in microphones.  "Having a culture of trust that supports remote working … I don't see those going away," said Katsikakis, who sees more companies leveraging remote working regularly. 
A real estate agent shows a home to a prospective buyer in Miami. Getty Images Mortgage volume appears to be settling into a new normal, as refinance demand stays high and purchase demand sits at a five-year low.  Total mortgage application volume decreased 0.3% last week from the previous week, according to the Mortgage Bankers Association's seasonally adjusted index. Volume was 70% higher than a year ago, but that's all because of refinances. Refinance demand did slip 1% for the week but was a sharp 225% higher than one year ago, when interest rates were over 1 percentage point higher. Refinance demand is also surging because some homeowners want to take cash out of their homes, worried that the economic downturn could worsen. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances of $510,400 or less remained unchanged at 3.45%, as were points at  0.29, including the origination fee, for loans with a 20% down payment. That's a low for the survey, which began in 1990. Mortgage applications to purchase a home did increase 2% for the week but were 31% lower than the one year ago. "The pandemic-related economic stoppage has caused some buyers and sellers to delay their decisions until there are signs of a turnaround," said Joel Kan, an MBA economist. "This has resulted in reduced buyer traffic, less inventory, and March existing-homes sales falling to their slowest annual pace in nearly a year."    California and Washington, two of the states hardest hit by the coronavirus, saw mortgage demand rise but were still over 40% below the same week one year ago. Demand in New York, which is seeing the worst of the pandemic, continued to fall. The refinance share of mortgage activity decreased to 75.4% of total applications from 76.2% the previous week. The adjustable-rate mortgage share of activity increased to 2.8% of total applications.
The possible destruction of the U.S. economy must be weighed against the diminishing health risks from the coronavirus, real estate mogul Barry Sternlicht told CNBC on Tuesday. "I actually think we have to reopen the economy. We have to do it ZIP code by ZIP code," said Sternlicht, whose $60 billion Starwood Capital Group has interests in luxury hotels and malls among its many other businesses. "We have to get going. The cost is too great. The government can't carry a $23 trillion economy." Sternlicht's call to action comes as more states run by Republican governors are announcing plans to reopen parts of their economies as new daily virus cases in the U.S. continue to slow. Georgia's timetable — one of the most aggressive in the nation — would allow gyms, hair salons, bowling alleys and tattoo parlors to reopen Friday. Elective medical procedures would also resume. By Monday, movie theaters and restaurants could start up again. "You have to look at the social cost against the human cost, which I know is awful," Sternlicht said on "Squawk Box." "There's a financial suicide and a death of small businesses and restaurants and the economy and the global economy that has to be weighed." The state stay-at-home orders and closures of nonessential businesses have led to a massive spike in unemployment. More than 22 million Americans filed for initial jobless claims in the past four weeks alone, basically wiping out all the jobs created in the 10 years since the Great Recession. Last month, Sternlicht said he supported President Donald Trump's push to reopen the economy, while he expressed unbridled optimism about the chances for recovery in the economy and the stock market once the worst of the pandemic had passed. He told CNBC on Tuesday that he's still bullish. But he tempered his enthusiasm. "What does the slope look like? It depends on how we reopen the economy." Sternlicht — who founded Starwood Hotels, which is now part of Marriott — said that property executives are working on "best practices" for reopening the nation's hotels and retail stores at the behest of the White House. "Last night, there was a call among several real estate executives that have been asked by the Trump administration to help with the opening of the economy," he said. "What we decided we wanted to do as a group was to come up with the best practices of reopening sectors of the real estate industry." Those practices would include protocols for deep cleaning and possibly temperature checks at entrances to hotels or stores, he added. In the absence of government protection for businesses against coronavirus lawsuits, he said that having guests or customers sign waivers may also be considered. "We really don't have to wait for the government. We should actually come up with our best practices sector by sector because we know the nuances of our asset classes," said Sternlicht, who founded Starwood Capital in 1991 and built it into a global investment powerhouse.
For weeks, the mortgage industry has been crying for help from being left on the hook to pay for much of the government's mortgage bailout. Now, they're getting some relief. More than 3 million borrowers have taken advantage of the mortgage forbearance program, which allows those with government-backed loans to delay up to a year's worth of monthly mortgage payments if they have been hurt financially by the economic fallout from the coronavirus. Borrowers would have to make those payments at a later date, or over time. Mortgage servicers, however, the companies that collect the payments, were required to advance that money to bondholders for up to a year. Now, the Federal Housing Finance Agency, which regulates Fannie Mae and Freddie Mac, has reduced that requirement to 4 months. "The four-month servicer advance obligation limit for loans in forbearance provides stability and clarity to the $5 trillion Enterprise-backed housing finance market," said FHFA Director Mark Calabria. "Mortgage servicers can now plan for exactly how long they will need to advance principal and interest payments on loans for which borrowers have not made their monthly payment." The percentage of loans now in forbearance jumped from 3.74% of servicers' portfolio volume in the prior week to 5.95% as of April 12, 2020, according to new numbers released Monday by the Mortgage Bankers Association. The share of Fannie Mae and Freddie Mac loans in forbearance increased from 2.44% to 4.64%. Since the program rolled out a little over three weeks ago, the number of loans in forbearance has tripled. The mortgage industry has been fighting hard for relief, led by the Mortgage Bankers Association. While they still want a larger liquidity facility from the Federal Reserve, they praised this latest development: "This is an important step in reducing the maximum liquidity demands for servicers who are providing borrowers who have a pandemic-related hardship with mortgage payment forbearance," said Bob Broeksmit, CEO of the MBA. "While this news reduces servicers' worst-case cash flow demands considerably, we continue to call on the Treasury and Federal Reserve to provide a liquidity facility to ensure that servicers can continue their important work of advancing missed payments to investors as well as paying property taxes and insurance premiums on behalf of struggling borrowers." As a result of the growing number of loans in forbearance, the overall mortgage market has tightened up dramatically, with lenders raising minimum FICO scores and pulling back from jumbo or high cost loans.  "We believe this is a positive step in addressing the liquidity needs of mortgage servicers. It is not a perfect solution, but it offers relief that should help the mortgage market," wrote Jaret Seiberg housing policy analyst for Cowen Washington Research Group. "This solution also should be positive for the MBS market as it clarifies that Fannie and Freddie will not purchase the mortgages out of the pools after four months. Instead, they will advance liquidity to servicers." While the four-month limit will certainly help, if the share of loans in forbearance jump even more dramatically over the next month, some servicers might be unable to fund even those payments. Larger banks, like JP Morgan Chase and Wells Fargo, have far more capital in reserve to fund these payments, but non-bank lenders and servicers do not. Before this crisis, mortgage delinquency rates were near record lows.
Prospective home buyers arrive with a realtor to a house for sale in Dunlap, Illinois. Daniel Acker | Bloomberg | Getty Images Sales of existing homes fell a wider than expected 8.5% in March compared with February to an annualized pace of 5.27 million units, according to the National Association of Realtors' seasonally adjusted index. Sales were just 0.8% higher than in March 2019.  These sales figures are based on closings that represent contracts signed mostly in late January and February, before the coronavirus shut down so much of the economy. "We saw the stock market correction in late February," said Lawrence Yun, chief economist for the NAR. "The first half of March held on reasonably well, but it was the second half of March where we saw a measurable decline in sales activity."  Yun indicated sales could fall as much as 30% to 40% in the coming months.  Regionally, sales fell across the nation but hardest in the West, down 13.6% month-to-month. Sales fell 9.1% in the South, 7.1% in the Northeast and 3.1% in the South.  The supply of homes for sale fell a sharp 10.2% annually. Toward the end of the month, some sellers de-listed their properties, not wanting potential buyers touring their homes in person. Other measures showed a sharp drop in the number of new listings in March, reflecting fear in the market among both buyers and sellers. "Homes are still selling fast, we just don't have enough inventory," added Yun, saying that real estate agents do report some interest and have ramped up virtual tours as well as live virtual showings. Price growth was still strong in March, with the median existing home price hitting $280,600, an 8% annual increase.  "Going forward, we've seen both homebuyers and sellers report feeling less confident and many are making adjustments to the process," said Danielle Hale, chief economist with realtor.com. "Already, sellers are getting less aggressive with asking price growth, and we're seeing roughly half as many new listings come up for sale this year versus last year." Fewer home sales over the coming months will likely mean slower price growth, and in some of the harder hit markets, where hospitality and leisure drive the local economies, prices could fall.