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 2

Unemployment Claims at Unprecedented Levels: 26M New Claims in 5 Weeks Unemployment Insurance: Initial Claims (Seasonally adjusted, 000s) 8000 March 28, 2020: 6.9m claims 7000 6000 5000 April 18, 2020: 4.4 m claims 4000 3000 2000 March 28, 2009: 665,000 claims 1000 0 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 Source: Department of Labor 3

March Employment Report Showed Early Signs of Weakness Monthly Payroll Growth and Unemployment Rate 400 12.0 275 214 178 200 10.0 - 8.0 Thousands Percent (200) 6.0 4.4 (400) 4.0 3.5 (600) 2.0 (701) (800) - 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 - 2020 - 2020 - Jan Feb Mar Payroll Growth (000s workers) Civilian Unemployment Rate: 16 yr + (SA, %) Source: Bureau of Labor Statistics 4

Retail Sales Plummeted in March Retail Sales Year over year percent change 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% -2.0% -4.0% -6.0% -8.0% 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 & Food Services Excl Motor Vehicles & Parts Dealers (NSA, $) % Change - Year to Year Retail Sales & Food Services (NSA, $) % Change - Year to Year Source: Department of Commerce 5

Air Travel and Restaurant Traffic Down to Zero/Near Zero TSA Checkpoint Traveler Count OpenTable Seated Diner Bookings 3,000,000 0% 20 -10% 2,500,000 0 -20% -30% 2,000,000 -20 -40% YOY Pct Chg 1,500,000 -50% -40 -60% 1,000,000 -70% -60 -80% 500,000 -90% -80 0 -100% 3/1/2020 3/8/2020 3/15/2020 3/22/2020 3/29/2020 4/5/2020 4/12/2020 -100 Total Traveler Throughput Total Traveler Throughput (1 Yr Ago) Australia Germany Mexico United Kingdom United States YOY Pct Change Source: TSA, Open Table 6

Unprecedented Market Volatility Treasury VIX 18 16 14 12 10 8 6 4 2 0 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 Source: CBOE 7

Dow Erratic, Recovering Slightly, 10 Yr Still Low DJ Index and 10 Yr Treasury Yield 35000.00 3.00 2.50 30000.00 2.00 25000.00 1.50 20000.00 1.00 15000.00 0.50 10000.00 0.00 Stock Price Averages: Dow Jones 30 Industrials, NYSE (May-26-1896=40.94) 10-Year Treasury Note Yield at Constant Maturity (%) Source: Federal Reserve, New York Stock Exchange 8

100 120 140 160 Source: Chicago Mercantile Exchange, Energy Information Administration Oil Prices Have Plunged on Lower Demand, Storage Capacity Shortages (60) (40) (20) 20 40 60 80 - 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 West Texas Intermediate Spot Price Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 $/Barrel 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 9 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

Fed Providing Massive Liquidity to the Market Source: Amherst Pierpont 10

Fed Securities Holdings Spiked Chart of the Week - April 24, 2020 Securities Held by the Federal Reserve Banks (Not Seasonally Adjusted, Millions $) 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 0 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 US Treasury Securities Federal Agency Debt Securities Mortgage-Backed Securities Source: Federal Reserve Board 11

Fed MBS Purchases Moderating: $560B Total (3/16/2020 – 4/24/2020) Fed QE4 Daily Purchases $45.0 $40.0 $35.0 $30.0 $25.0 $20.0 $15.0 $10.0 $5.0 $- UMBS 30 UMBS 15 G2 30 Source: Federal Reserve, JP Morgan 12

Substantial Stimulus Bill – CARES Act Passed, More to Come? 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 Source: Wells Fargo Securities, Mortgage Bankers Association 13

MBA Forecast: Growth Stalls in 2020, Rebound in 2021 MBA Forecast 14

Fed Cuts To Zero Lower Bound – Then Holds Until 2022 Source: Federal Reserve, Freddie Mac, MBA Forecast 15

Mortgage-Treasury Spreads Have Widened 30-Year Fixed Mortgage Rate versus 10-Year Treasury Yield 5.00 300 4.50 280 4.00 260 3.50 240 3.00 220 2.50 200 2.00 180 1.50 160 1.00 140 0.50 120 0.00 100 10 Yr Treasury Yield (%) 30 Yr Fixed Rate (%) Spread (bps, right axis) Source: Federal Reserve Board, Freddie Mac 16

Recent Refi Activity Volatile but Elevated Refinance Index and 30-Yr Fixed Mortgage Rate 7,000 5.50 6,000 5.00 30 yr Fixed Rate 5,000 4.50 4,000 4.00 Index Rate 3,000 3.50 2,000 3.00 1,000 2.50 Refinance Index 0 2.00 Refi Index (left axis) 30 Yr Fixed rate (right axis) Source: Weekly Applications Survey 17

Measuring Rate Incentive Rate Differential from 2014 to Present (difference between observed rate and April 9th 2020 = 3.33%) 180 160 140 120 100 Basis points 80 60 40 20 - (20) 1/2/2014 1/2/2015 1/2/2016 1/2/2017 1/2/2018 1/2/2019 1/2/2020 Source: Freddie Mac 18

Purchase Activity Dropped Off Purchase Mortgage Applications Index (by week of the year, NSA) 350 300 250 200 2016 2017 2018 150 2019 2020 100 50 0 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 Source: MBA Weekly Applications Survey 19

Purchase Applications Slowing in Large Markets Week-Over-Week Change Year-Over-Year Change % Change: % Change: % Change: % Change: Week Ending Week Ending Week Ending Week Ending State 4/17/2020 4/10/2020 4/17/2020 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 Source: MBA Weekly Applications Survey 20

Source: Census Bureau, National Association of Realtors March Home Sales Fell 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 Seasonally adjusted annualized rate Jan.2007 May.2007 Existing and New Home Sales Existing (left axis) Sep.2007 Jan.2008 May.2008 Sep.2008 Jan.2009 May.2009 Sep.2009 Jan.2010 May.2010 Sep.2010 Jan.2011 May.2011 New (left axis) Sep.2011 Jan.2012 May.2012 Sep.2012 Jan.2013 May.2013 Sep.2013 Jan.2014 May.2014 Sep.2014 Jan.2015 May.2015 21 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 - 200 400 600 800 1,000 1,200 1,400 1,600

Buyers and Sellers Temporarily On Hold Source: National Association of Realtors 22

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/ 23

Credit Tightened Availability Tightened in March Source: Ellie Mae, Mortgage Bankers Association 24

Jumbo Spreads Widening Spread Between Jumbo and Conforming 30 Year Fixed Mortgage Rates 70 60 50 17-Apr-20, 36 40 30 Basis points 20 10 0 -10 -20 -30 -40 Source: MBA Weekly Applications Survey 25

% of Servicing Portfolio Volume in Forbearance by Investor Type over Time Ginnie Fannie/Freddie Other (PLS, Portfolio, etc.) Total 9.00% 8.26% 8.00% % of Servicing Portfolio Volume (#) in Forbearance 7.00% 6.43% 6.00% 5.95% 5.00% 4.64% 4.00% 3.00% 2.00% 1.00% 0.87% 0.25% 0.19% 0.00% 0.09% AS OF MARCH 8 AS OF MARCH 15 AS OF MARCH 22 AS OF MARCH 29 AS OF APRIL 5 AS OF APRIL 12 Source: MBA’s Weekly Forbearance and Call Volume Survey, as of 4/12/20 26