I have talked to more lending executives and leaders this week than I can count. Three major topics dominate the conversations:
Margin calls – Last week many lenders were faced with notable margin calls that required substantial liquidity. As rates rose this week the squeeze softened. The MBA is working with regulators to reduce the risk weight on warehouse lines from 100% to 50% to increase capacity for warehouse lenders and manage tail risks.
“Managing the tail risks and having sufficient liquidity to survive the short-run are paramount,” Princeton Mortgage CEO Rich Weidel said. “EPOs, EPDs, margin calls, servicing write-downs all require lots of liquidity at the same time. The other side of this looks good, but lenders need to be able to stay in business. Those with a fortress balance sheet will win.”
Third-party risk to current mortgage pipelines. Most notably – appraisals, VOE and in-person interaction at closings.
The non-QM and jumbo markets are at risk of evaporating.
Before we get into these risks and what the industry is doing to mitigate, I want to say thank you to the professionals that are SAFELY continuing to support the housing economy. Originators have shifted to remote work. Real estate agents are pivoting to virtual. But appraisers are still tasked with visiting properties.
One LendingLife reader shared, “we’re going into unknown germ filled homes! We can’t get masks or gloves.” Another reader shared, “We are out in the field taking risks so the loan officers can do their jobs to try to keep the economy floating.”
As an industry, what are we doing to mitigate these risks?
In conversations with AMC executives, as of Friday there has not been any guidance from the GSE’s to mitigate or reduce the risk or stem the growing bottleneck. Fannie, Freddieand the FHFA – the ball is in your court.
On risks associated with in-person closings Chris Barr of First Centennial Mortgageshared, “Chicago Title has said that borrowers can stay in their cars and a Closer will come out with docs a few at a time. So a drive thru almost.” Fortunately, there is a fast-moving bipartisan push in Congress to allow remote online notarizations nationwide.
To add insult to injury, Managing Editor Sarah Wheeler reports the coronavirus is quickly eroding if not entirely wiping out the non-QM market. After years of advocacy for expanding the credit box, lenders coast to coast completely exit or pause non-QM lending operations. A gut punch for originators as loans are suspended and this growing product disappears from the shelf. This is a developing story, so please respond with insight.
One step forward,
CEO // HousingWire