Economic and Mortgage Market Outlook April 2020 Presented by: Joel - - PowerPoint PPT Presentation

Economic and Mortgage Market Outlook

April 2020

Presented by:

Joel Kan

Mortgage Bankers Association

Forecast for a V-Shaped Recovery, Deep Dip & Quick Bounce Back

Source: Bureau of Economic Analysis, MBA Forecast

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Unemployment Claims at Unprecedented Levels: 26M New Claims in 5 Weeks

Source: Department of Labor

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1000 2000 3000 4000 5000 6000 7000 8000 05.Jan.08 05.Jan.09 05.Jan.10 05.Jan.11 05.Jan.12 05.Jan.13 05.Jan.14 05.Jan.15 05.Jan.16 05.Jan.17 05.Jan.18 05.Jan.19 05.Jan.20

Unemployment Insurance: Initial Claims (Seasonally adjusted, 000s)

March 28, 2009: 665,000 claims March 28, 2020: 6.9m claims April 18, 2020: 4.4 m claims

March Employment Report Showed Early Signs of Weakness

Source: Bureau of Labor Statistics

4 178 214 275 (701) 3.5 4.4

• 2.0

4.0 6.0 8.0 10.0 12.0 (800) (600) (400) (200)

• 200

400 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 - Jan 2020 - Feb 2020 - Mar Percent Thousands

Monthly Payroll Growth and Unemployment Rate

Payroll Growth (000s workers) Civilian Unemployment Rate: 16 yr + (SA, %)

Retail Sales Plummeted in March

Source: Department of Commerce

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• 8.0%
• 6.0%
• 4.0%
• 2.0%

0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17 Nov-17 Jan-18 Mar-18 May-18 Jul-18 Sep-18 Nov-18 Jan-19 Mar-19 May-19 Jul-19 Sep-19 Nov-19 Jan-20 Mar-20

Retail Sales

Year over year percent change

Retail Sales & Food Services Excl Motor Vehicles & Parts Dealers (NSA, $) % Change - Year to Year Retail Sales & Food Services (NSA, $) % Change - Year to Year

Air Travel and Restaurant Traffic Down to Zero/Near Zero

Source: TSA, Open Table

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• 100
• 80
• 60
• 40
• 20

20 YOY Pct Chg

OpenTable Seated Diner Bookings

Australia Germany Mexico United Kingdom United States

• 100%
• 90%
• 80%
• 70%
• 60%
• 50%
• 40%
• 30%
• 20%
• 10%

0% 500,000 1,000,000 1,500,000 2,000,000 2,500,000 3,000,000

3/1/2020 3/8/2020 3/15/2020 3/22/2020 3/29/2020 4/5/2020 4/12/2020

TSA Checkpoint Traveler Count

Total Traveler Throughput Total Traveler Throughput (1 Yr Ago) YOY Pct Change

Unprecedented Market Volatility

Source: CBOE

7 2 4 6 8 10 12 14 16 18 1/2/2008 1/2/2009 1/2/2010 1/2/2011 1/2/2012 1/2/2013 1/2/2014 1/2/2015 1/2/2016 1/2/2017 1/2/2018 1/2/2019 1/2/2020

Treasury VIX

Dow Erratic, Recovering Slightly, 10 Yr Still Low

Source: Federal Reserve, New York Stock Exchange

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0.00 0.50 1.00 1.50 2.00 2.50 3.00 10000.00 15000.00 20000.00 25000.00 30000.00 35000.00

DJ Index and 10 Yr Treasury Yield

Stock Price Averages: Dow Jones 30 Industrials, NYSE (May-26-1896=40.94) 10-Year Treasury Note Yield at Constant Maturity (%)

Oil Prices Have Plunged on Lower Demand, Storage Capacity Shortages

Source: Chicago Mercantile Exchange, Energy Information Administration

9 (60) (40) (20)

• 20

40 60 80 100 120 140 160

Jan-00 May-00 Sep-00 Jan-01 May-01 Sep-01 Jan-02 May-02 Sep-02 Jan-03 May-03 Sep-03 Jan-04 May-04 Sep-04 Jan-05 May-05 Sep-05 Jan-06 May-06 Sep-06 Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17 Jan-18 May-18 Sep-18 Jan-19 May-19 Sep-19 Jan-20 Mar 04 2020 Mar 10 2020 Mar 16 2020 Mar 20 2020 Mar 26 2020 Apr 01 2020 Apr 07 2020 Apr 14 2020 Apr 20 2020

West Texas Intermediate Spot Price $/Barrel

Source: Amherst Pierpont

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Fed Providing Massive Liquidity to the Market

Source: Federal Reserve Board

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1,000,000 2,000,000 3,000,000 4,000,000 5,000,000 6,000,000 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20

Chart of the Week - April 24, 2020 Securities Held by the Federal Reserve Banks (Not Seasonally Adjusted, Millions $)

US Treasury Securities Federal Agency Debt Securities Mortgage-Backed Securities

Fed Securities Holdings Spiked

Fed MBS Purchases Moderating: $560B Total (3/16/2020 – 4/24/2020)

Source: Federal Reserve, JP Morgan

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$- $5.0 $10.0 $15.0 $20.0 $25.0 $30.0 $35.0 $40.0 $45.0

Fed QE4 Daily Purchases

UMBS 30 UMBS 15 G2 30

Substantial Stimulus Bill – CARES Act Passed, More to Come?

Source: Wells Fargo Securities, Mortgage Bankers Association

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Includes:

• Liquidity Facility: $454 billion for loans, loan

guarantees, and investments in programs or facilities established by the Federal Reserve for the purposes of providing liquidity to the financial system that supports lending to eligible businesses, states, or municipalities.

• Consumer Right to Request Forbearance
• Multifamily Mortgage Forbearance
• Moratorium on Evictions
• Small-Business Assistance
• Delay of CECL
• HUD Rental Assistance
• More details:

https://mba- pa.informz.net/informzdataservice/onlineversion/ind/bWFpbGluZ2luc 3RhbmNlaWQ9Nzg2MjYyOCZzdWJzY3JpYmVyaWQ9OTEyMDU0M zY0

MBA Forecast: Growth Stalls in 2020, Rebound in 2021

MBA Forecast

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Fed Cuts To Zero Lower Bound – Then Holds Until 2022

Source: Federal Reserve, Freddie Mac, MBA Forecast

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Source: Federal Reserve Board, Freddie Mac

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Mortgage-Treasury Spreads Have Widened

100 120 140 160 180 200 220 240 260 280 300 0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00 4.50 5.00

30-Year Fixed Mortgage Rate versus 10-Year Treasury Yield

10 Yr Treasury Yield (%) 30 Yr Fixed Rate (%) Spread (bps, right axis)

Recent Refi Activity Volatile but Elevated

Source: Weekly Applications Survey

17 2.00 2.50 3.00 3.50 4.00 4.50 5.00 5.50 1,000 2,000 3,000 4,000 5,000 6,000 7,000 Rate Index

Refinance Index and 30-Yr Fixed Mortgage Rate

Refi Index (left axis) 30 Yr Fixed rate (right axis)

30 yr Fixed Rate Refinance Index

Measuring Rate Incentive

Source: Freddie Mac

18 (20)

• 20

40 60 80 100 120 140 160 180 1/2/2014 1/2/2015 1/2/2016 1/2/2017 1/2/2018 1/2/2019 1/2/2020 Basis points

Rate Differential from 2014 to Present (difference between observed rate and April 9th 2020 = 3.33%)

Purchase Activity Dropped Off

Source: MBA Weekly Applications Survey

19 50 100 150 200 250 300 350 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 Week of the Year

Purchase Mortgage Applications Index (by week of the year, NSA)

2016 2017 2018 2019 2020

Purchase Applications Slowing in Large Markets

Source: MBA Weekly Applications Survey

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State % Change: Week Ending 4/17/2020 % Change: Week Ending 4/10/2020 % Change: Week Ending 4/17/2020 % Change: Week Ending 4/10/2020 WA 12.3 16.4 (45.8) (52.5) TX 6.8 (2.9) (24.0) (27.8) IL 6.7 (1.6) (16.6) (26.7) CA 2.9 1.8 (47.9) (49.0) NC 0.9 3.1 (13.3) (21.5) FL 0.7 (6.2) (34.6) (35.3) GA 0.7 (6.1) (18.8) (18.9) VA 0.2 5.2 (12.8) (19.3) AZ (0.1) 0.7 (34.0) (34.7) NY (8.3) 0.8 (59.2) (58.4) NOTE: Not seasonally adjusted, home purchase applications only Week-Over-Week Change Year-Over-Year Change

March Home Sales Fell

Source: Census Bureau, National Association of Realtors

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• 200

400 600 800 1,000 1,200 1,400 1,600

• 1,000

2,000 3,000 4,000 5,000 6,000 7,000 8,000

Jan.2000 May.2000 Sep.2000 Jan.2001 May.2001 Sep.2001 Jan.2002 May.2002 Sep.2002 Jan.2003 May.2003 Sep.2003 Jan.2004 May.2004 Sep.2004 Jan.2005 May.2005 Sep.2005 Jan.2006 May.2006 Sep.2006 Jan.2007 May.2007 Sep.2007 Jan.2008 May.2008 Sep.2008 Jan.2009 May.2009 Sep.2009 Jan.2010 May.2010 Sep.2010 Jan.2011 May.2011 Sep.2011 Jan.2012 May.2012 Sep.2012 Jan.2013 May.2013 Sep.2013 Jan.2014 May.2014 Sep.2014 Jan.2015 May.2015 Sep.2015 Jan.2016 May.2016 Sep.2016 Jan.2017 May.2017 Sep.2017 Jan.2018 May.2018 Sep.2018 Jan.2019 May.2019 Sep.2019 Jan.2020

Existing and New Home Sales Seasonally adjusted annualized rate

Existing (left axis) New (left axis)

Buyers and Sellers Temporarily On Hold

Source: National Association of Realtors

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Impact to Home Builders

Source: National Association of Home Builders: http://eyeonhousing.org/2020/04/week-2-poll-shows-impacts-of-virus-on-the-rise/

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Credit Tightened Availability Tightened in March

Source: Ellie Mae, Mortgage Bankers Association

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Jumbo Spreads Widening

Source: MBA Weekly Applications Survey

25 17-Apr-20, 36

• 40
• 30
• 20
• 10

10 20 30 40 50 60 70 Basis points

Spread Between Jumbo and Conforming 30 Year Fixed Mortgage Rates

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% of Servicing Portfolio Volume in Forbearance by Investor Type over Time

Source: MBA’s Weekly Forbearance and Call Volume Survey, as of 4/12/20

0.19% 8.26% 0.09% 4.64% 0.87% 6.43% 0.25% 5.95% 0.00% 1.00% 2.00% 3.00% 4.00% 5.00% 6.00% 7.00% 8.00% 9.00% AS OF MARCH 8 AS OF MARCH 15 AS OF MARCH 22 AS OF MARCH 29 AS OF APRIL 5 AS OF APRIL 12 % of Servicing Portfolio Volume (#) in Forbearance Ginnie Fannie/Freddie Other (PLS, Portfolio, etc.) Total

Decline in Purchase Activity, Refi Boom Ebbs by End of 2020, Highest Total Volume Since 2006

Source: MBA Forecast

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Source: MBA Forecast

28 6,835 9,441 8,551 5,543 6,914 8,076 6,731 6,287 8,007 8,714 6,521 6,413 2,503 2,768 3,221 3,249 3,708 4,188 4,262 4,419 4,524 4,268 4,684 4,870 4,331 6,673 5,330 2,294 3,205 3,888 2,469 1,869 3,483 4,446 1,837 1,543 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Historical Originations and Forecast (Counts, 000s)

Total Counts Purchase Counts Refinance Counts

Originations Forecast by Number of Loans

Home Equity At Record Levels in 2019

Source: Federal Reserve Board

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• 200,000

400,000 600,000 800,000 1,000,000 1,200,000

• 2,000,000

4,000,000 6,000,000 8,000,000 10,000,000 12,000,000 14,000,000 16,000,000 18,000,000 20,000,000

Owners Equity in Real Estate and Home Equity Debt Outstanding

Owners Equity in Real Estate (left axis) Home Equity Debt (right axis)

Source: MBA’s Quarterly Mortgage Bankers Performance Report for IMBs: www.mba.org/performancereport

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Production Profitability: Q4 Was Strong

$1,858 $416

$0 $200 $400 $600 $800 $1,000 $1,200 $1,400 $1,600 $1,800 $2,000 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 1H19

$ per Loan

Depositories IMBs

Technology Costs for Originating Loans Are Rising - $ per Loan (All Production Channels)

* Large Banks and IMBs Only

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Source: PGR: MBA and STRATMOR Peer Group Roundtables: www.mba.org/pgr

Changing Shape of Industry Technology

Source: MISMO

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MISMO resources: http://www.mismo.org/digital-mortgage-resource-center

Contact Information and MBA Resources

Joel Kan Associate Vice President | Economic and Industry Forecasting (202) 557-2951 jkan@mba.org MBA Research: RIHA: www.mba.org/research www.housingamerica.org

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