Friday, October 9, 2020

When we see equities rising during circumstances such as what we’ve been experiencing this year with a pandemic-stricken economy, we tend to seek out those sources of strength that bolster bullish investment activity. This morning, look no further than the active forbearance mortgage program, which saw 18% of its pandemic-related members struggling with paying their home mortgages leave the program, or 649K mortgages overall. As of October 6th, 2.97 million mortgages in the U.S. are in forbearance, or 5.6% — a notable drop from 6.8% last week.

Under the Covid mortgage bailout plan, monthly payments can be delayed up to one year, in three-month increments that must be renewed. Any missed payments must be paid back. As of now, 78% of mortgages currently involved in the bailout plan have been extended at least once since March. Now that nearly 20% in the program have rolled out of it illustrates strength in homeowners’ ability to dig themselves out of a certain amount of financial difficulty.

All investor classes are affected by the inability to pay mortgages, by the way, with Portfolio/Private down the most, 24%, followed by Fannie and Freddie mortgages, -16% with FHA/VA loans down 15%. This breakdown helps us see it’s not simply one investment class vastly outperforming the others; improvements in household finances are appearing across the board. This is the first time we’ve seen this forbearance program fall beneath the 3 million level since April, when it was on the upswing.

Analysts now look toward the 800K more loans scheduled to reach their six-month expiration date next month. Should this trend hold, we might see another big number of forbearance mortgage holders shed the need for the assistance program. With employment growth continuing to (sluggishly) ramp up in this Great Reopening, that we’re seeing real advancements in homeowners leaving forbearance assistance is a necessarily good piece of economic news.

Next week, we’ll start the onslaught of Q3 earnings reports flow through. Expectations are better for this quarter than last, as the bounce-back from the depth of the “shelter in place” period of the pandemic is expected to be profound in a number of industries. Just look at expectations for Q3 GDP: anywhere from 20%-30% growth is anticipated to have happened in the previous three-months; this will necessarily find its way to the top- and bottom-lines of many a corporate report over the next 4-6 weeks. Bring it on!

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