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Here Comes The Next Crisis: Up To 30% Of All Mortgages Will Default In "Biggest Wave Of Delinquencies In History"

“This is an unprecedented event. The great financial crisis happened over a number of years. This is happening in a matter of months – a matter of weeks.”

Unlike in the 2008 financial crisis when a glut of subprime debt, layered with trillions in CDOs and CDO squareds, sent home prices to stratospheric levels before everything crashed scarring an entire generation of homebuyers, this time the housing sector is facing a far more conventional problem: the sudden and unpredictable inability of mortgage borrowers to make their scheduled monthly payments as the entire economy grinds to a halt due to the coronavirus pandemic.

And unfortunately this time the crisis will be far worse, because as Bloomberg reports mortgage lenders are preparing for the biggest wave of delinquencies in history. And unless the plan to buy time works – and as we reported earlier there is a distinct possibility the Treasury’s plan to provide much needed liquidity to America’s small businesses may be on the verge of collapse – an even worse crisis may be coming: mass foreclosures and mortgage market mayhem.

Borrowers who lost income from the coronavirus, which is already a skyrocketing number as the 10 million new jobless claims in the past two weeks attests, can ask to skip payments for as many as 180 days at a time on federally backed mortgages, and avoid penalties and a hit to their credit scores. But as Bloomberg notes, it’s not a payment holiday and eventually homeowners they’ll have to make it all up.

According to estimates by Moody’s Analytics chief economist Mark Zandi, as many as 30% of Americans with home loans – about 15 million households – could stop paying if the U.S. economy remains closed through the summer or beyond.

“This is an unprecedented event,” said Susan Wachter, professor of real estate and finance at the Wharton School of the University of Pennsylvania. She also points out another way the current crisis is different from the 2008 GFC: “The great financial crisis happened over a number of years. This is happening in a matter of months – a matter of weeks.”

Meanwhile lenders – like everyone else – are operating in the dark, with no way of predicting the scope or duration of the pandemic or the damage it will wreak on the economy. If the virus recedes soon and the economy roars back to life, then the plan will help borrowers get back on track quickly. But the greater the fallout, the harder and more expensive it will be to stave off repossessions.

“Nobody has any sense of how long this might last,” said Andrew Jakabovics, a former Department of Housing and Urban Development senior policy adviser who is now at Enterprise Community Partners, a nonprofit affordable housing group. “The forbearance program allows everybody to press pause on their current circumstances and take a deep breath. Then we can look at what the world might look like in six or 12 months from now and plan for that.”

But if the economic turmoil is long-lasting, the government will have to find a way to prevent foreclosures – which could mean forgiving some debt, said Tendayi Kapfidze, Chief Economist at LendingTree. And with the government now stuck in “bailout everyone mode”, the risk of allowing foreclosures to spiral is just too great because it would damage financial markets and that could reinfect the economy, he explained.

“I expect policy makers to do whatever they can to hold the line on a financial crisis,” Kapfidze said hinting at just a trace of a conflict of interest as his firm may well be next to fold if its borrowers declare a payment moratorium. “And that means preventing foreclosures by any means necessary.”

Take for example Laura Habberstad, a bar manager in Washington, D.C., who got a reprieve from her lender but needs time to catch up. The coronavirus snatched away her income, as it has for millions, and replaced it with uncertainty. The restaurant and beer garden where she works was forced to temporarily shut down. Laura has no idea when she’ll get her job back, nor does she have any idea how to look for a new job. After all, how do you search for another hospitality job during a global pandemic? Now she’s living in Oregon with her mother, whose travel agency was also forced to close.

“I don’t know how I’m going to pay my mortgage and my condo dues and still be able to feed myself,” Habberstad said. “I just hope that, once things open up again, we who are impacted by Covid-19 are given consideration and sufficient time to bring all payments current without penalty and in a manner that does not bring us even more financial hardship.”

Borrowers must contact their lenders to get help and avoid black marks on their credit reports, according to provisions in the stimulus package passed by Congress last week. Bank of America said it has so far allowed 50,000 mortgage customers to defer payments. That includes loans that are not federally backed, so they aren’t covered by the government’s program.

Meanwhile, Treasury Secretary Steven Mnuchin has convened a task force to deal with the potential liquidity shortfall faced by mortgage servicers, which collect payments and are required to compensate bondholders even if homeowners miss them. The group was supposed to make recommendations by March 30.

“If a large percentage of the servicing book – let’s say 20-30% of clients you take care of – don’t have the ability to make a payment for six months, most servicers will not have the capital needed to cover those payments,” QuickenChief Executive Officer Jay Farner said in an interview. But not Quicken, of course.

Quicken, which serves 1.8 million borrowers, and in 2018 surpassed Wells Fargo as the #1 mortgage lender in the US, has a strong enough balance sheet to serve its borrowers while paying holders of bonds backed by its mortgages, Farner said,  although something tells us that in 6-8 weeks his view will change dramatically. Until then, the company plans to almost triple its call center workers by May to field the expected onslaught of borrowers seeking support, he said.

Ironically, as Bloomberg concludes, “if the pandemic has taught us anything, it’s how quickly everything can change. Just weeks ago, mortgage lenders were predicting the biggest spring in years for home sales and mortgage refinances.”

Habberstad, the bar manager, was staffing up for big crowds at the beer garden, which is across from National Park, home of the World Series champions. Then came coronavirus. Now, she’s dependent on her unemployment check of $440 a week.

“Everybody wants to work but we’re being asked not to for the sake of the greater good,” she said.

https://www.zerohedge.com/economics/here-comes-next-crisis-30-all-mortgages-will-default-biggest-wave-delinquencies-history

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The statements, views and opinions expressed in this column are solely those of the author and do not necessarily represent those of The Duran.

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Olivia Kroth
April 3, 2020

Thank you for your excellent work, Alex. I am glad you are going on with the Duran during these hard times. True news are very much needed.

John Ellis
John Ellis
April 3, 2020

NATIONALIZE ALL WEALTH — END HOARDING, THE RCH AND ALL THNGS EVIL

As we are all born with a different level of intelligence, the idea of ownership is a fake morality that causes the lower-half of society to be forever enslaved as the 50% working-poor.

For personal wealth is the property we hoard above what is needed for a comfortable life, the power, deadly force and glory that rules the world.
For without personal wealth, everyone could afford to own a home.

Viral Update
Viral Update
Reply to  John Ellis
April 3, 2020

Nationalize all wealth?……..and put it in the hands of the likes of politicians? Good grief. Who let you out of your box?

John Ellis
John Ellis
Reply to  Viral Update
April 4, 2020

Greater your wealth, greater your greed, still you want to continue allowing the corporate rich to hoard 90% of our wealth. Who fooled you into thinking that you have a functioning brain?

John Ellis
John Ellis
April 3, 2020

Declearing all home mortages nul and void and all personal debts paid in full,
would it not be the best thing that ever happened to all humanity?

For that was what they did in old Israel every 50 years, it was the jubilee year
and it worked like a charm.

Sally Snyder
Sally Snyder
April 3, 2020

As shown in this article, the recent COVID-19 budgetary bill clearly shows that it is business as usual in Washington:

https://viableopposition.blogspot.com/2020/04/the-coronavirus-aid-relief-and-economic.html

One has to question whether a key portion of these expenditures are really going to solve the emergency particularly in light of the massive addition to the already bloated federal debt.

TravelAbout
TravelAbout
Reply to  Sally Snyder
April 3, 2020

As if the almost 23 TRILLION wasn’t bad enough, they go and add another 6 TRILLION, a hefty 25% increase! I’m shocked the value of the dollar hasn’t fallen to say 40 cents, and even that’s a stretch. I mean its basically worthless as this debt will NEVER be paid back.

John Ellis
John Ellis
April 4, 2020

Only billionairs should bailout millionaires. Surely, tax dollars must
be used to bailout only those who lack food, clothing or shelter.

John Ellis
John Ellis
April 4, 2020

FREEWILL SOCIALISM — ONLY CURE FOR CAPITALISM
For socialism is charity, and if enforced by law,
it is a total desecration of the moral fabric of society.
For compassion and charity given in a way that best produces
a grateful response, this is what a humain society is all about.

Wesaf
Wesaf
April 6, 2020

This was always coming,they dangled the carrot and as the people tried harder to win the little to have a home of there own the thieving banks little by little along with the unscrupulous real estate dogs slowly but surely pushed the people into more debt and harder times.That what today the culmination of slowly stripping away the only chances the little person had. But now you bastards its coming home to roost.The more you try to kickstart the economy the more money you pour in,all you doing is servicing borrowings not even principle is being serviced have a look… Read more »

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