Mortgage Volatility To Drive Yields Lower
When Covid-Recovery Mortgage Giveaways End
An alarming chart and thread is making the rounds that highlights the fraud that is FHA loss mitigation policies and the mortgage delinquencies that just hit 11%. This represents 6.1 million Americans behind on their mortgages who have been backstopped by the FHA. The question; however, is for how long?
John Comiskey is the one who uncovered The dark, ugly corner of the FHA mortgages - The 100,000+ 70% delinquent FHA Loan Modifications of Doom
FHA Covid-19 Recovery Loan Modifications originated over the past 2 years are running ~70% delinquent, ~55% seriously delinquent. Up to 160,000 of them. An abject FHA loss mitigation policy failure.
He also updates the abuse as he finds it on his X handle @Johncomiskey77 and in his substack. The point he make echoes mine:
Unless mtg rates collapse before the music stops on extend and pretend gonna be an FHA disposition shit show.
It would be good to keep in mind that this is yet a small piece of the overall mortgage pie, but it does bear watching - for all the really good reasons John lays out.
Then Danielle DiMartino Booth picked up this thread and petitioned the powers-that-be to stop the grift:
The Daily Feather — An Open Letter to HUD Secretary Scott Turner
Given Musk-led DOGE has embarked on a mission to reduce the US Govt deficit by 15% or $1 trillion within 130 days, it seems likely that this FHA paying people’s mortgages will be identified as a wasteful misappropriation of taxpayer dollars and ended. Then what?
Delinquencies trigger sales which increases housing supply on the market at the same time the economy is slowing while the new administration promises lower rates to drive down inflation. A market growth scare is one way to tap down treasury yields, but so too is a hit to the housing market.
Duration Trades Like A Commodity
There is another pocket of risk occurring in the mortgage market: a growing share of homeowners - 42% - can’t refi amid tight credit markets.
Banks have a “cheap and steep” 10Y2Y yield curve (helps bank net interest margin so they are incentivized to loan), and consumers have relatively lower mortgage rates and plenty of home equity to untap. These are good conditions to encourage loan demand, but banks are refusing. Why? Lots of theories out there about folks not qualifying. I don’t buy it.
Instead, I’m focused on the motivations of a bank purposefully slowing mortgage refinancing, especially as trapped mortgage holders want to pull equity out of their property as consumer confidence plummets and foreign investors liquidate property and equity holdings to take their money home.
With rising inventories and rising mortgage refi rejections, it would not surprise me to see a further weakening in mortgage rates - which would result in falling 10Y treasury yields as well.
Walk with me…