An opinion piece from Christopher Whalen, Chairman, Whalen Global Advisors LLC at National Mortgage News. "Last week was difficult for members of the mortgage industry, especially for those members of the residential lending community who've been working in the world of mortgage finance for more than a decade. As in the late 1990s and the 2008 financial crisis, lenders and servicers are learning once again that the government market of the Federal Housing Administration and Ginnie Mae is the only reliable one for agency mortgage loans."

"The government-sponsored enterprises or GSEs, Fannie Mae, Freddie Mac and the Federal Home Loan banks, are again backing away from the market. In the 1990s and the 2008 crisis, lest we forget, the private mortgage insurers and ultimately the GSEs retreated from their legal obligation to repurchase defaulted loans, seeking instead to give them back to the lenders."

"The more astute operators in the mortgage industry knew there again would be problems with the GSEs when the bull market in housing ended, but today the situation is even more serious for banks and nonbanks alike."

"The Federal Housing Finance Agency seems determined to keep the GSEs out of the fray as COVID-19 pushes unemployment rates to levels not seen since the 1930s. With unemployment in the mid-teens in April and likely to move significantly higher, the rate of defaults in one-to-four family loans could easily exceed the 2009 peak level for charge-offs by the end of the year."

"While the banking system and nonbank mortgage servicers can deal with the operational load of the coronavirus crisis, preserving the conventional loan market will depend upon the GSEs honoring their legal obligation to repurchase genuinely defaulted loans and the MIs paying out on mortgage insurance claims. Unfortunately, FHFA Director Mark Calabria seems to think he can stiff the mortgage servicers for the cost of dealing with the natural disaster called COVID-19, a position that is in striking contrast to the helpfulness and urgency shown by the FHA and Ginnie Mae in recent weeks."

"It seems a bit churlish for the FHFA not to support the GSEs to help lower the cost of government loan forbearance on the very mortgage servicing strips that the GSEs ultimately own. Michael Bright, former Ginnie Mae president and CEO of the Structured Finance Association said last week, 'The administration, including FHFA, has advocated for this forbearance and should be willing to pay for its own programs rather than expecting private American companies to pick up the tab, with potentially bad outcomes for homeowners and taxpayers.'"

"Everyone knows the GSEs don't have the cash to repurchase loans in a crisis of the magnitude now facing the industry. The GSEs did not have the cash in 2008 and, to Director Calabria's point, their first quarter results should show the same in 2020. The best thing FHFA can do is to allow the GSEs to operate exactly the way they did before this crisis began — buy loans out in normal course and focus on bringing liquidity to a broad cross section of smaller issuers in the conventional ecosystem. The big banks and nonbanks can handle the load, but only if Director Calabria stops attacking the industry in public. Comments last week by Director Calabria caused a firestorm in the mortgage industry, especially when he told the Financial Times that the GSEs would run out of cash in 12 weeks."

"With such harsh negative views coming from a federal regulator, markets are viewing the servicing small-bank and nonbank assets as toxic, making loan origination uneconomic for anyone but the big banks and larger nonbank aggregators, and killing any liquidity in mortgage servicing rights. The decision last week by JPMorgan Chase to limit warehouse lines to government and conventional loans is directly attributable to the comments by Director Calabria that he would not support conventional servicers. How are these comments helpful?"

"But more than the cost of dealing with the CARES Act, what the FHFA, Fed and other agencies within the Financial Stability Oversight Council need to prepare for is the very real default risk tsunami headed our way. It is likely that the rate of actual default in one-to-four family mortgages could be twice the peak levels seen between 2008 and 2010, when U.S. banks charged off hundreds of billions in loans and bond investors sustained huge losses on subprime MBS."

"During 2020 and 2021, the $11.5 trillion MBS sector could be forced to absorb 5% to 6% charge-off rates across GSE and prime jumbo exposures and well into double digits for FHA/VA/USDA and the scant few below-prime residential loans outstanding. Assume that the banks hold the best quality prime loans in credit terms, then comes the GSEs, then the FHA market. That still gives us $200-250 billion in prospective loan repurchase costs for the GSEs over the next two years. If loan loss rates go higher into double digits, then all bets are off and even the very liquid, well capitalized money center banks will suffer."

"Rather than fighting with members of the mortgage industry, we think the FHFA director and his FSOC counterparts need to sit down with the Treasury and fashion an emergency capital plan for the GSEs. Treasury needs to help the GSEs plough through possible double-digit loan defaults."

"Instead of going to Treasury for yet another 'bailout,' Director Calabria instead seems to think the private servicers can bailout the GSEs through potentially unprecedented levels of principal and interest advancing relative to any past crisis. It is probably time for the Trump administration to put aside the idea of ending the conservatorship for the GSEs next year. Instead, we need to focus on how Fannie Mae and Freddie Mac will be able to finance what could be several hundred billion dollars in loan buyouts from MBS investors over the next two years."

From CNBC. "Mortgage credit availability in March fell to the lowest level in five years, according to a survey by the Mortgage Bankers Association. Lenders cite a large drop in liquidity, as investors in jumbo mortgage-backed bonds pull back. Jumbo loans are those valued above the conforming loan limit of $510,400."

"'There was a reduction in the availability of loans with lower credit scores and higher LTV ratios, and the largest pullback came from the jumbo and non-QM space,' said Joel Kan, an MBA economist. Non-QM are loans that fall outside the criteria for government purchase. 'Lenders are making credit criteria changes to account for the increased likelihood of forbearance and defaults, as well as higher costs.'"

"Early last week, Wells Fargo, the nation’s largest mortgage lender by volume, temporarily suspended its purchasing of nonconforming, loans from correspondent sellers, 'due to unprecedented market conditions,' according to Tom Goyda, a company spokesman. It is also scaling back its own retail originations of nonconforming refinances and conforming high-balance loans."

"The servicing industry has been begging the Federal Reserve for some kind of liquidity facility to help them make their payments to bondholders, but so far only Ginnie Mae has done that for FHA loans. The lack of liquidity is putting the whole servicing industry at risk and adding to a growing list of reasons to tighten lending."

"'No one really wants to hear this, but the tightening is very logical in this environment,' said Matthew Graham, chief operating officer at Mortgage News Daily. 'Sure, investors will certainly get their money back at some point. But how long will that take, how much of their business will be affected, and what will the interruptions/headaches look like?'"

"Several nonbank lenders are also raising minimum credit scores for FHA loans, which are generally used by borrowers with lower scores and lower down payments. The FHA itself has not changed its guidelines. For homebuyers, and there are still some out there, the timing of locking in a mortgage rate and then getting all the way through to closing on a home has lengthened dramatically, putting the availability of that mortgage at risk."

"'It depends on what type of mortgage you are looking for in terms of difficulty,' said Guy Cecala, CEO of Inside Mortgage Finance. 'A conforming mortgage for a home purchase is probably the ‘easiest,’ while a jumbo refi is probably the ‘hardest’ to get in the current environment.'"

From Housing Wire. "Standards for home loans are tightening by the hour as companies like United Wholesale Mortgage, the nation’s largest wholesale lender, beef up rules to ward off early defaults from people losing jobs because of the COVID-19 pandemic. 'I get as many as 10 emails a day from companies announcing new overlays – mostly for re-verification of employment,' said Mark Goldman, a loan officer with C2 Financial in San Diego. 'All the lenders want to make sure borrowers are still working and still have cash flow.'"

"As lenders tightened standards, an index measuring the availability of mortgage credit in March crashed to the lowest level since June 2015, led by a pull-back in jumbo and non-QM lending, the Mortgage Bankers Association said in a Thursday report. MBA’s Mortgage Credit Availability Index fell 16% led by a 24% plunge in jumbo and non-QM mortgages. A drop in the index means rules are stricter and mortgages are harder to get."

From ABC Action News in Florida. "It could be harder for some people to get an FHA loan during the pandemic, according to agents. They say lenders are now requiring a higher credit score for the same loans. An FHA loan through the Department of Housing and Urban Development is designed for low-to-moderate income borrowers and requires lower minimum down payments and credit scores than many conventional loans. Cities and counties also often offer down-payment assistance programs."

"Brian D. Frey, an agent in Tampa said before the COVID-19 pandemic, lenders were requiring a 580, 590, or 600 credit score for an FHA loan. Now, they are requiring a 620 to 640 credit score. According to agents, lenders had to ensure people can really afford to buy the homes after the changes we've seen in the economy after the pandemic hit. 'I mean people’s financial positions changed overnight,' Frey said. 'They had to put the brakes on it, but it is not game over.'"

From WSB TV in Georgia. "It's a common story realtor Shalitia Smith has been hearing from her clients. 'They would call and they would be told that they would be given a period of time, whether it’s three months, six months as a forbearance plan, but at the end of that term they would have to pay back all of the amounts of money that they missed,' she said. Smith told Petchenik those payments include interest, too. 'To me, for my clients who have been laid off, it puts them in a foreclosure situation if they’re not able to pay that money back,' she said."