Re-defaults of mortgage modifications at all time highs. In its most recent report for the first quarter of 2019, the Office of the Comptroller of the Currency (OCC) noted that 21% of the most recently modified loans had re-defaulted within six months.Based on Fitch Ratings data, the re-default rate for Fannie Mae loans modified three or more years ago could be approaching 50%. JPMorgan Chase is at 43% and Bank of America is at 41% re-default levels.
What is going on with the Fed’s Repo Overnight market and the re-opening of the Fed’s Balance Sheet?
Throughout the Fed’s history, a bank that is forced to borrow at the discount window because it can’t get loans elsewhere is seen as being in deep distress. That’s why banks don’t do it. The New York Times summed it up, during the 2008 crisis, pretty well,
“ ‘Going to the discount window is like someone on the Upper East Side being seen in a Wal-Mart,’ said Charles R. Geisst, a financial historian at Manhattan College. ‘The T-shirts may be cheap, but why would you?’ ”
Geisst added: “ ‘The banks are circling the wagons. Somebody’s got a problem.’ ”
To say that the Market is shaky is an understatement. No matter how the Fed colors it, we are back into the days of Quantitative Easing. The problem is that with a larger role being played by hedge funds and REITs; with respect to the real time intercepting the distressed assets, the likelihood of contractors playing a role in their lifecycle is becoming less frequent. In fact, even though first time defaults are starting to climb, they are nowhere near where they were during the 2008 Crisis. Money Maven had this to say,
An estimated 243K borrowers defaulted on first lien mortgages in Q2 2019
While the quarter ending on a Sunday certainly played a factor in the rise in defaults, a noticeable overall slowdown in the decline in default activity has been observed.
The national default rate rose by 3% compared to Q2 2018, the first such annual rise since the financial crisis (adjusting for the 2017 hurricane season)
And despite the Q2 year-over-year rise in defaults, overall seriously delinquent inventory (loans 90 or more days past due) is down by 17% from last year.
So, where is the new Mecca? Being that the storm season never materialized, the safest bet has been a direct to consumer move. Firms like Hudson Homes and New Residential, whom recently purchased Ocwen, Altisource, Chronos Solutions, and Guardian Asset Management to name just a few, are constantly looking for qualified contractors. Additionally, direct to agent relationships have been paying off handsomely for many.
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