coronavirus housing market crash

  • 4 min read
  • Mar 20, 2019

Can coronavirus sicken our healthy housing market? – Orange County ...
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As a coronavirus pandemic threatens the financial markets and sent the US economy into a potential recession, those who lead the mortgage company must take immediate measures to prepare for the worst. The last time the financial markets experienced such a precipitous decline that during the 2008 financial crisis.

I am the CEO of CitiMortgage during and after the crisis and saw firsthand how the housing market became paralyzed. I am now the CEO of the nation (HSL), and I apply some of the lessons I learned from the last crisis. Here is what we in the mortgage industry should consider doing immediately:

1. Improving liquidity:. , More than 50% of the origination of mortgage US and 45% from services provided by the “non-bank” or HSLs

I wrote about, and I want to re-share the workings of finance: “Non-bank [ HSLs] originate loans and then selling them to other entities such as Freddie Mac and Fannie Mae, the non-bank pay ongoing costs to service the loan. The lifetime value of these costs is an asset known as mortgage-servicing rights or MSR. Non-bank use MSRs as collateral, so they can borrow money from banks to be used as working capital. “

Indeed, MSRs correlated to moves in interest rates. As prices fall, HSLs thinly capitalized may be unable to obtain the financing they need to service the loan. Keep in mind that 40% of HSLs, according to Richey may & Co. In addition, many HSLs trying to hedge their mortgage as a protection against a large movement in the rate. This often requires HSLs to post collateral with the loan they are. But when the market value of the collateral (MSRs) drops, it is even more difficult to perform poorly HSLs to gain access to the capital they need.


non-bank lenders may face a liquidity crisis.

U.S. interest rates did fall dramatically – and these smaller HSLs be tested. When a homeowner misses a payment, the payment HSLs must still submit to government agencies, including Freddie Mac and Fannie Mae. Unlike large banks, HSLs not have deposits. In short, HSLs may face a liquidity crisis, need to borrow money from a lender warehouses typically large financial institutions. It remains to be seen whether this warehouse lender will provide financing

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According to the Brookings Institution, the US housing sector is not ready for these stress scenarios, which now embodies. HSLs need to get ahead of what may be coming. They can do this by checking with their warehouse lender to ensure that they can access loans at affordable rates. Additionally, HSLs can make the case that even if the hedge they had lost money, they should be able to access the value of MSRs them, especially if they are defeated. In other words, HSL need to investigate their liquidity situation and have a serious call to their warehouse lender to ensure that funds are not dry.

2. Mortgage modification program: Some large financial institutions forecast that the economy will fall into recession. Associated coronavirus has hit the port and travel agencies, and more industries are likely to follow. When someone gets laid off, they lose their main way to pay their mortgage and can easily begin to miss payments. At CitiMortgage, we realized that it was important to keep people in their homes, so we created a powerful mortgage modification program mandated a smaller balance. my current company is in the midst of evaluating various options of modification mortgage payment holidays. While we can not control the market events, we and other lenders can and should take quick and immediate action now to keep homeowners in their homes.

Sanjiv Das is CEO. He is the CEO of CitiMortgage 2008-2013

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