Christopher Whalen

When new lending volumes start to recede, even with the FOMC’s actions, the shoals of credit and operational risk lurking just beneath the surface will emerge, columnist and analyst Chris Whalen says.

How we resolve millions of delinquent mortgages due to COVID is the only question that matters.

With the onset of COVID and the reaction by the Federal Reserve Board and other agencies, market pressures have reduced credit availability significantly.

The only rational strategy for holding MSRs is to be very aggressive on protecting the servicing assets via loan recapture. This is one of the chief reasons that banks have been willing to give up their share in lending and servicing as they collapse back to retail-only lending strategies.

This proposed Libor replacement is an imaginary, backward-looking benchmark dreamed up by the economists at the Fed with no discernible market.

The FHFA director’s move this week to impose an “adverse market fee” of 0.5% on most refinanced mortgages will shift billions out of the hands of American consumers and into the hands of Fannie Mae and Freddie Mac — and their private shareholders.

Whalen: "It is tempting to think that low interest rates will cure all ills in the housing sector, but this view is seriously in error, as we learned in 2008."

Any intention that Ginnie Mae may have had to slow prepayment rates by changing the rules on RPLs seems to be thwarted by the grim economic reality facing the big banks.

FHFA, HUD and Ginnie Mae should let the rate of prepayments on MBS dictate bond prices and market rates.

Not only is FHFA Director Mark Calabria preparing the GSEs to raise capital, but he must also help them decide just what they are selling to private investors in the way of equity returns and risk.