Category: Financing

BLACK KNIGHT’S FIRST LOOK AT FEBRUARY 2021 MORTGAGE DATA

Mortgage Delinquencies Rise for the First Time in Nine Months; Increase Largely Calendar-Driven but Bears Watching

  • After eight consecutive months of improvement, the national mortgage delinquency rate rose in February from 5.85% to 6.0%
  • The rise was largely calendar-related, as February is both a short month and ended on a Sunday – cutting the days on which payments can be processed – which has historically impacted performance metrics
  • Delinquency rate increases were seen broadly across portfolios, geographies and asset classes
    The increase was primarily seen in early-stage delinquencies, while the number of loans 90 or more days past due but not yet in foreclosure (including those in active forbearance) saw a modest decline
  • Prepayment activity edged upward in February as well, but recent 30-year interest rate increases are likely to put downward pressure on prepayment rates in the coming months
  • Both foreclosure starts and active foreclosure inventory again hit new record lows, as recently extended foreclosure moratoriums continue to suppress activity.

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    BLACK KNIGHT’S FIRST LOOK AT DECEMBER 2020 MORTGAGE DATA

    2020 Ends With 1.7 Million More Seriously Delinquent Homeowners Than at Start of Year; Foreclosures at Record Low

    • The year ended with 1.54 million more delinquent and 1.7 million more seriously delinquent mortgages than at the start of 2020, a looming reminder of the challenges facing the market in 2021
    • Despite the year-over-year increase, the national delinquency rate saw modest improvement in December, falling by 3.9% from November to 6.08%, the lowest level since April 2020
    • Serious delinquencies (loans 90 or more days past due) also improved, falling to 2.15 million from 2.19 million the month prior
    • Even after months of improvement, 90-day default activity rose by more than 250% (+2.6 million) overall in 2020
    • Foreclosure starts fell by 67% from the year prior and the year’s 40,000 foreclosure sales (completions) represented an annual decline of more than 70%
    • Starts and sales have hit record lows as moratoriums and forbearance plans protect distressed homeowners from facing foreclosure in the wake of the pandemic
    • Prepayment activity rose by 12% in December, ending the year 112% higher than the same month in 2019 and highlighting a still-strong refinance market entering 2021

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      Nearly 20% of renters in America are behind on their payments

      The typical delinquent renter now owes $5,600, being nearly four months behind on their monthly payment, according to a new analysis. This also includes utilities and late fees.

      About 18% renters in America, or around 10 million people, were behind in their rent payments as of the beginning of the month.

      It is far more than the approximately 7 million homeowners who lost their properties to foreclosure during the subprime mortgage crisis and the ensuing Great Recession. And that happened over a five-year period.

      In one of his first executive orders, President Joe Biden extended the Centers for Disease Control and Prevention’s current eviction moratorium through the end of March, but that is unlikely to be long enough.

      A new analysis from Mark Zandi, chief economist at Moody’s Analytics, and Jim Parrott, a fellow at the Urban Institute, shows the typical delinquent renter now owes $5,600, being nearly four months behind on their monthly payment. This also includes utilities and late fees. In total, an astounding $57.3 billion is owed. This includes all delinquent renters, not just those suffering financially due to the Covid pandemic.

      “Compared to renters that are making their rent payments on time, currently delinquent renters are more likely to be lower income, less educated, black and with children,” noted the authors of the analysis.

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        What an Uncertain Commercial Real Estate Outlook in 2021 Means for Financing

        By Steven Caligor, BHI

        In these early days of 2021, there appears to be some cautious prospects of hope.

        A COVID-19 resurgence both internationally and domestically, further lockdowns, and even a new variant of the virus create uncertainty. However, the vaccine rollout has sparked market rallies, along with hopes of returning to a degree of normalcy toward the end of the year. We now have a stimulus package and a new presidential administration. Yet this scenario is tempered by a focus on the predicted winter COVID activity, thus creating further question marks.

        Even the economic forecasts present a mixed picture. The base case from the Conference Board calls for a 3.4 percent annual expansion of the U.S. economy in 2021. Yet the Congressional Budget Office (CBO) projects that GDP will increase 4.2 percent in 2021, and the CBRE Real Estate Market Outlook forecasts 4.5 percent GDP growth this year.

        The ambiguity of where we are in the COVID crisis — whether there is an end in sight and when — will determine prospects for the real estate sector. In 2021, the real estate story will be all about asset class, density and geography. For each of these aspects, to paraphrase Charles Dickens, it could be the best of times or the worst of times, depending on multiple variables.

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          BLACK KNIGHT’S FIRST LOOK AT NOVEMBER 2020 MORTGAGE DATA

          Delinquencies Improved Again in November 2020, But Nearly 2.2 Million Seriously Past-Due Mortgages Remain

          • Despite seasonal headwinds, mortgage delinquencies improved for the sixth consecutive month in November 2020, falling to 6.33% from 6.44% in the month prior
          • The national delinquency rate is now down 1.5 percentage points from its peak of 7.8% in May but remains a full three percentage points (+93%) above pre-pandemic levels
          • While early-stage delinquencies – borrowers one or two payments past due – have fallen back below pre-pandemic levels, seriously past-due (90+ days) mortgages remain 1.8 million above pre-pandemic levels
          • Foreclosure activity remains muted as widespread moratoriums remain in place
          • November’s 4,400 foreclosure starts and 176,000 loans in active foreclosure are both at their lowest levels on record since Black Knight began reporting the metrics in 2000
          • Prepayments fell 11% from October’s 16-year high; however, with interest rates at record lows and refinance incentive at an all-time high, prepay activity is likely to remain elevated in the coming months

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            BLACK KNIGHT’S FIRST LOOK AT OCTOBER 2020 MORTGAGE DATA

            Mortgage Delinquencies Decline for Fifth Consecutive Month in October; Record-Low Rates Push Prepayment Activity to 16-Year High

            • Mortgage delinquencies improved again in October, falling to 6.44%, the lowest level since March
            • Despite five consecutive months of improvement, there are still more than 3.4 million delinquent mortgages, nearly twice as many as there were entering the year
            • Serious delinquencies – loans 90 or more days past due – improved in October as well, but volumes remain at more than five times (+1.8 million) pre-pandemic levels
            • October’s 4,700 foreclosure starts marked a nearly 90% year-over-year reduction as widespread moratoriums remain in place, while active foreclosure inventory set yet another record low at 178,000
            • Record-low interest rates again pushed prepayment activity higher, with October’s prepayment rate of 3.17% setting the highest single-month mark in more than 16 years

            ACKSONVILLE, Fla. – November 23, 2020 – Black Knight, Inc. (NYSE:BKI) reports the following “first look” at October 2020 month-end mortgage performance statistics derived from its loan-level database representing approximately two thirds of the national mortgage market. Data is then extrapolated to reflect the entirety of the active mortgage universe.

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              A $50 Billion Housing Bond Market Is Stuck in Regulatory Limbo

              Questions are arising about the long-term viability for agency-backed credit-risk-transfer securities.

              (Bloomberg) — A $50 billion bond market once heralded as the future of housing finance has been stuck in limbo since the start of the coronavirus crisis, and now proposed regulatory changes have left investors worrying that they might be left holding the bag.

              At issue are so-called credit-risk-transfer securities offered by Fannie Mae and Freddie Mac. They are tied to Fannie and Freddie’s mortgage-backed securities and pay investors principal and interest as long as the borrowers don’t default.

              Fannie hasn’t issued the bonds since the pandemic began, and the company’s executives are privately telling some investors that it has doubts about the market’s longterm viability. Freddie, meanwhile, has resumed issuing the bonds after a pause near the start of the pandemic. The lack of activity is starting to worry investors that they will be saddled with securities that are akin to museum pieces that no one is interested in buying.

              The uncertainty stems from a proposal by Federal Housing Finance Agency Director Mark Calabria that many say would make it uneconomic in some cases for Fannie and Freddie to keep issuing the securities. Calabria’s plan would reduce the capital relief the companies get by issuing CRT by about half in some circumstances, according to Chris Helwig, a managing director at Amherst Pierpont Securities.

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                Some Multifamily Borrowers are Struggling to Find Small Balance Loans

                Terms are becoming more stringent on the financing deals that are closing amid the COVID-19 crisis.

                Amid the broader challenges facing the commercial real estate market, many investors who own smaller apartment buildings are struggling to find financing in the current climate.

                Many of the banks these sorts of investors rely on to finace deals have become more cautious in the pandemic—especially because smaller apartment buildings are more likely than larger properties to have residents hurt by the crisis that are falling behind in rent. Facing potential distress on existng loans, some banks are lowering origination volumes and hesitating to make new loans. Meanwhile, for the deals that are getting done, terms are becoming more stringent.

                “They are cautious… They make the loan-to-value ratio much lower,” says Richard Katzenstein, senior vice president and national director of Marcus & Millichap Capital Corp., working in the firm’s offices in New York City.

                Some owners of small properties work with lenders that offer programs like Freddie Mac’s Small Balance Loan program, or CMBS lenders—but all multifamily lenders are being extra careful in the crisis.

                Local banks still lead with small balance loans

                Community banks remain the most important source of financing for apartment investors with tiny portfolios. These apartment companies also tend to own smaller buildings and rely on the same bank they use for everyday financial needs to also arrange small balance apartment loans.

                Overall, banks, thrifts and credit unions provide a third ($124.1 billion) of the $364 billion of multifamily mortgages originated in 2019. The size of their average apartment loan was just $2.7 million, according to the Mortgage Bankers Association. Commercial banks remain the biggest players.

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                  Debt Funds Like Blackstone’s Begin to Play a Bigger Role in CRE Lending as CMBS Steps Back

                  The lending market “is not cautiously pessimistic, it’s not cautiously optimistic. It’s just in a quiet place where it doesn’t know which direction to go,” says one source.

                  In the commercial real estate lending arena, many debt funds and smaller banks are stepping up during the coronavirus pandemic, while many CMBS lenders and big banks are stepping aside.

                  Although lenders as a whole haven’t given up on commercial real estate loans, a lot of them have tiptoed toward the sidelines. Debt funds and smaller banks will likely become increasingly active in commercial real estate lending to fill the void left by CMBS lenders and big banks, according to Omar Eltorai, lead market analyst at New York City-based commercial real estate platform Reonomy.

                  “Everybody is yield-hungry, and commercial real estate still has a pretty attractive profile. So, I think there’s going to be a lot of money chasing that exposure,” Eltorai says. “But where’s that money going to be coming from? I think it’s going to generally be from the lenders that have fewer headwinds and fewer restrictions.”

                  Because of the headwinds faced by many lenders, it’s no surprise that U.S. real estate deal volume tumbled 68 percent this August compared with last August, according to New York City-based data provider Real Capital Analytics Inc. (RCA).

                  “Before the pandemic, most borrowers had many financing options. Now, options are much more limited and lenders can be more selective,” says Rob Weil, principal at JDI Loans, the lending division of Chicago-based private equity real estate firm JDI Realty LLC. “Lenders now have the opportunity to use more conservative underwriting standards, or charge a premium if the lender is willing to expand the underwriting standards.”

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                    The Rush to Refinance Multifamily Properties Continues

                    The low rate environment continues to make it a good time to refinance apartment properties, assuming you can find a lender willing to cut a deal.

                    As has been the case for much of the recent crisis, borrowers are continuing to try to capitalize on favorable rates to refinance apartment properties—that is, when they can find lenders willing to close deals.

                    Long term interest rates—like the yield on 10-year Treasury bonds—fell below 1 percent at start of the economic crisis caused by the spread of the coronavirus in March 2020, and stayed below 1 percent well into mid-summer.

                    Freddie Mac and Fannie Mae lenders have proven to be consistently willing to make loans to qualified apartment properties with interest rates fixed at a spread over these historically low interest rates. Other types of lenders, including many banks and life insurance companies, have been more cautious.

                    Long-term interest rates fall to new historic lows
                    On July 28, the benchmark yield on 10-year U.S. Treasury bonds was 0.58 percent. It has hovered around 0.6 percent and 0.7 percent for several months. In comparison, in the months before the crisis, the benchmark yield hovered between 1.5 percent and 2 percent.

                    “The outlook is for a continuation of low rates through the end of the year,” says Tony Solomon, senior vice president and national director of Marcus & Millichap Capital Corp. “Could rates fall even lower? Sure, maybe a little, but they are very low now and we know that there is an ‘open window’ of various capital sources for the right asset and borrower.”

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