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Redfin reported more house hunters are returning to the market as mortgage rates and home prices continue to decline, but low inventory is hampering their searches.
Banks continue to borrow from the new bank term funding program, up $10 billion last week to $64 billion while borrowing from the Fed discount window slowed to $88 billion, down $22 billion according to CNBC’s Steve Liesman. All told, in the month of March, the Fed increased its balance sheet a net $324 billion, although during this past week the Fed’s balance sheet actually declined as they did let MBS and Treasuries roll off — short of their targets but after rising in recent weeks appears to indicate some calming of the crisis, at least for the time being.
Outflows from small banks slowed to $1 billion, CNBC reported, and we saw outflows from large banks to the tune of $96 billion — $65 billion was transferred to money market funds last week, half the week prior, but it set a new record of $5.2 trillion in money market funds as we see the desire for yield play out. Although they are not insured deposits, those investments are mostly in government securities.
Despite the borrowing from the banks, at least for the Fed discount window, appearing reach a crescendo, there are still signs of further weakness and continued fears of a broader recession. One such marker is the growth in the money supply and the velocity of money, which has slowed significantly. Despite the Fed lending to banks, total outstanding liabilities in the banking system are declining rapidly. Morgan Stanley says bank liabilities are falling at a rate of 7% year-over-year, the biggest decline in more than 60 years, which suggests both economic and earnings growth are likely to remain under pressure.
We mentioned commercial real estate lending last week. Morgan Stanley says 70% of the core CRE debt in the banking sector was originated by regional banks, and much is maturing in the next few years — about $550 billion needing to be refinanced per year until 2027 ($450 billion this year). Even where the CRE lending is done by other banks, they point out, these small and medium size banks are buyers of senior tranches of agency commercial mortgage-backed securities. “If their ability to buy these securities decreases because of new regulations, this indirectly impacts the prospects for refinancing maturing debt in the sector as well,” Morgan Stanley’s chief fixed income strategist said.
Markets appeared to be mollified slightly over the weekend after the FDIC found a buyer for Silicon Valley Bank. Nevertheless, the quarter point added to the Fed Funds rate last week has increased pressure incrementally on smaller banks trying desperately to maintain their deposit base and compressing their margins, which will result in the further restriction of credit when banks had already been pulling back for risk reasons.
Remarkably, an estimated $500 billion has been withdrawn from small banks in the past two weeks. Banks have borrowed from the Fed’s discount window at an average of $117 billion each night, and an average of $34.6 billion per day from the newly-created Bank Term Funding Program (up from the previous weeks $3.4 billion). It appears some of this borrowing has been very defensive in nature, a desire to build cash reserves for institutions that aren’t under immediate pressure, willing to pledge assets now in case panic spreads.
While SVB was an outlier in terms of its concentrated depositor base, its failure has caused concerns for other banks with significant interest rate exposure and vulnerable, uninsured deposits like SVB. It is estimated that if marked to market the banking sector is sitting on $2 trillion plus in asset declines. Should the economy slow further (expected as credit is further restricted and that is the intention of the Fed’s tightening) then the ability of smaller banks to weather decreasing deposits from companies with shrinking earnings could lengthen this stress.
A majority of commercial real estate mortgages are held by the small to mid-sized banks experiencing the most pressure. While single family 30-year fixed rates are expected to trend down this year, many commercial deals made in a lower rate environment are coming due and will be difficult to refinance, causing further pressure on that sector. In addition to rates disqualifying firms, the willingness of banks to make the loans, especially if the borrowers are money losing operations, will be curtailed, especially when cash yields them 4.5%. That is to say, an economy that slows is likely to cause additional pain. Fannie Mae is saying the recent bank failures may act as the catalyst that tips the economy into a recession, largely due to tighter lending standards by small- and mid-sized regional banks.
In their recent article for Reverse Mortgage Daily, Gate House Partners Keith Becker, Dror Oppenheimer, and Michael Marshall discuss the pressures in the housing finance market relative to reverse or home equity conversion mortgages (HECMs), suggesting action is needed to avoid further failures of Ginnie Mae HECM servicers and issuers.
If reverse servicers and “issuers” are a liquidity lifeline soon, the authors opined, “there could be additional failures, with Ginnie Mae and possibly, taxpayers holding the bag. Further harm can be avoided if Ginnie Mae provides support and the Federal Housing Administration (FHA) makes some critical changes to its HECM rulebook.”
Gate House illuminates the challengers facing HECM servicers and issuers as a result of both the rapidly rising interest rate environment and esoteric HUD policies that differ from the GSEs, for example, the fact that Ginnie Mae issuers are required to fund the buyout of “due and payable” loans, often for a period of two to three years, and advance tax and insurance payments when the loans are bought out of pools.
Gate House Vice Chairman Hunter Kurtz joined @ConsultQuadel President and @Forbes_Books contributor Katie Goar for her podcast series “Change Makers with Katie Goar, Finding the right solutions for the affordable housing community” to share his insights on affordable housing through the lens of his experience in public housing and community development. Based on his experience as former HUD Public & Indian Housing Assistant Secretary, his career serving in other significant roles at HUD and Michigan state government in Detroit, and his current work with Gate House Strategies, in Part 1 of the series, Hunter discusses his career path in affordable housing, specific challenges and solutions to solving current supply constraints in affordable housing including through programs like “Faircloth to RAD” (the Rental Assistance Demonstration program), the importance of graduating renters on public assistance into market rate units, combatting veteran homelessness through programs like the HUD-VASH program, and what it will take generally to improve the shortage of affordable housing in America.
In Part 2 of the series, Hunter discusses the work of Gate House’s new subsidiary, Gate House Digital, including our colleague Dain Ehring’s perspective on the emergence of Artificial Intelligence in mortgage lending, the receipt of the “Sammies Award” by his former HUD colleague’s for their mutual work preventing homelessness of foster youth aging out of the program, his work with public housing authorities and the success of PHAs during the height of the Covid pandemic, and being part of “the rebirth of a great American city,” Detroit, where he resides today.
Washington, DC: Gate House Strategies, LLC is pleased to celebrate one year as a firm. Launched May 5, 2021, the Gate House partners had high expectations there was a need for the experience and expertise the Gate House team could provide both as a trusted advisor in the housing market and as a driver of change in the industry to which our professionals have dedicated their careers. We saw an opportunity and opening to provide guidance as well as services that would add tremendous value to our clients’ businesses.
“We are tremendously proud of the work we are doing with our clients and business partners, and we are extremely excited about the future and the many possibilities for us to grow together,” said Brian Montgomery, Chairman of the firm. “For every new door that we walked through, three more have opened. We are seizing upon every opportunity to leverage our knowledge and experience to help others and to develop into one of the leading advisors and service providers in the industry,” Montgomery added.
“Gate House Strategies continues to grow, we continue to unlock opportunities that we could not have imagined just one year ago,” added Hunter Kurtz, Vice Chairman of the firm. “We are looking forward to driving our clients and Gate House to new levels in the coming year.”
In one year, Gate House has been deeply involved in solving for many of the most complex challenges facing the mortgage market today and at all levels and in all segments of the loan lifecycle. Working with mortgage originators, servicers, developers, specialized default managers, field services companies, and many of the most innovative technology companies in this industry, Gate House is headlong into helping to transform the marketplace and advise firms who continue to assist struggling borrowers in the wake of the COVID-19 pandemic.
Gate House is heavily engaged in the end-to-end digital transformation within the mortgage industry, on both the transactional side of the single and multifamily sectors as well as many related ancillary services and aspects of the market. We are pleased to announce the formation of Gate House Digital as we enter our second year. A subsidiary of Gate House Strategies LLC, Gate House Digital will provide tremendous focus to prop-tech and fin-tech, a growing and sought-after area of Gate House’s business expertise. Gate House Digital will be led by our colleague Dain Ehring, a veteran of Silicon Valley and pioneer in the digital mortgage space.
“I am honored and excited to lead Gate House’s effort to impact the digital revolution taking place within today’s housing and mortgage market,” Ehring said. “There is tremendous value that our team can bring to the process and to the innovators who will take the industry to a new level from end-to-end, and in many aspects of the market that support real estate finance.” et
“Gate House Strategies continues to grow, we continue to unlock opportunities that we could not have imagined just one year ago,” added Hunter Kurtz, Vice Chairman of the firm. “We are looking forward to driving our clients and Gate House to new levels in the coming year.”
In one year, Gate House has been deeply involved in solving for many of the most complex challenges facing the mortgage market today and at all levels and in all segments of the loan lifecycle. Working with mortgage originators, servicers, developers, specialized default managers, field services companies, and many of the most innovative technology companies in this industry, Gate House is headlong into helping to transform the marketplace and advise firms who continue to assist struggling borrowers in the wake of the COVID-19 pandemic.
Gate House is heavily engaged in the end-to-end digital transformation within the mortgage industry, on both the transactional side of the single and multifamily sectors as well as many related ancillary services and aspects of the market. We are pleased to announce the formation of Gate House Digital as we enter our second year. A subsidiary of Gate House Strategies LLC, Gate House Digital will provide tremendous focus to prop-tech and fin-tech, a growing and sought-after area of Gate House’s business expertise. Gate House Digital will be led by our colleague Dain Ehring, a veteran of Silicon Valley and pioneer in the digital mortgage space.
Gate House Vice Chairman Hunter Kurtz, when he served as Assistant Secretary for Public and Indian Housing (PIH) at HUD, had led a team of staff who were determined to address a critical challenge for a vulnerable population in America, our nation’s youth who age out of foster care and are at risk of homelessness.
The HUD PIH team designed a new program, the Foster Youth to Independence Initiative (“FYI Initiative”) which now provides rental assistance and other supportive services to these individuals.
In his recent article for HousingWire, Kurtz congratulates his former colleagues for receiving the prestigious “Sammies” Award in recognition of their innovative approach and execution of the FYI Initiative.
Kurtz applauds the work of his former colleagues as well as the many families of the Foster Youth program who volunteer to make a tremendous difference in the lives of at-risk youth. They are “un-sung heroes” in our national life, Kurtz says.
The FYI Initiative has now issued over 1,000 housing choice vouchers for former foster youth. Without support, an estimated 25% of youth aging out of foster care experience homelessness within four years.
In their recent article for Reverse Mortgage Daily, Gate House Founding Partners Brian Montgomery, Keith Becker and Dror Oppenheimer discuss the implications of the first positive capital ratio for the HECM program in six years.
The Gate House team, who worked together at the Federal Housing Administration managing the HECM program, provided their unique perspective and explained that important policy changes, and most certainly strong home price appreciation, have contributed to the substantial improvement in the HECM capital ratio.
Nevertheless, they argued, the results do not “provide a reason for complacency or assurance of future (positive) results” and therefore continued vigilance to ensure the program “is not continuously subsidized by the premiums … in the forward book, will be vital for the HECM program to continue to serve its mission.”
Montgomery is the only person to have served as FHA Commissioner twice under three presidents. Becker served as the Deputy Assistant Secretary and Chief Risk Officer for FHA. Oppenheimer served as a Senior Advisor to the Commissioner of FHA.
Gate House Chairman Brian Montgomery and CEO Keith Becker recently opined in the M Report on the favorable condition of the FHA Mutual Mortgage Insurance Fund.
In their article, Montgomery and Becker argue that FHA must be prepared to weather adverse events in the future similar to the wake of the Financial Crisis in 2008 or the COVID-19 pandemic. As pressure mounts to reduce mortgage insurance premiums (MIP), continued commitment to FHA’s countercyclical role would dictate caution. FHA must work, they wrote, “to put itself in a position to best serve low- to moderate-income borrowers who will be most affected should private markets constrict (which history has shown sometimes do).”
In urging caution on mortgage insurance premiums, they cite the Annual Report’s acknowledgment that the assumptions underlying the financial position of the fund can “change materially and quickly with changes in both actual and projected home values.”
Montgomery and Becker caution that unintended effects of MIP changes could occur, and FHA would be wise to keep available “all options that help to expand opportunities for low- to moderate-income homebuyers by deploying some of the excess capital into new programs, products, or underwriting policies.”
Reflecting on his long career in public service, Gate House Chairman Brian Montgomery spoke with DS News about the key lessons he has learned over the years.
Montgomery’s remarkable journey, which began driving in a Vice Presidential motorcade in his home state of Texas, took him to the White House, back to Texas to the Governor’s Mansion, and then back again to the White House and, eventually, to HUD and FHA (twice).
Montgomery was with the President of the United States on 9-11. He was at HUD dealing with the aftermath of the 2008 financial crisis and the housing collapse, and in 202, he was back at HUD addressing the unique challenges presented by the COVID-19 pandemic.
Reflecting on what he has taken away from these experiences, Montgomery takes pride in getting things done, in working with people on both sides of the aisle, and seeking common ground. When trying to get something accomplished in Washington, he emphasizes, “Don’t ever assume anything, especially in a political environment. You never know how people will react to something, especially if you’re telling them you need their help.”