** Today's Mortgage TRID-Bit **

What’s the current loan performance outlook like?

If the Fed achieves their desired success in loosening labor markets, it means increasing unemployment. I was asked recently if there is a rule of thumb in regards to how much of an increase in unemployment creates an increase in serious delinquencies. That's an interesting question now. In the last two serious downturns, there has been huge intervention into the market from the government. So you can't just look at the data from the past. We're now less certain about what that relationship would be. It's reasonable to expect another policy intervention.? I've been asking lenders, do you believe that mortgage lending is still secured lending? Have these interventions severed the security from the loan? They say, "I don't know." The reason I ask is there might be questions about whether risk premiums are wide enough if there's acknowledgement that you no longer have access to the asset. If you think about capital markets and functioning and how pricing takes place, if you've lost the security, you would think risk premiums would rise. So maybe that's why a piece of why yield spreads are wider. There are other things like the Fed exiting mortgage-backed securities. They're the single biggest holder in the world. Who replaces them? It's going to be somebody that's going to care about yield. We've got time to figure it out because the Fed's portfolio is running off very slowly. You also have to ask, is there a reputational risk for mortgages in the banking sector now given Silicon Valley Bank's problems? What's going to happen with bank rules? Maybe that affects spreads. Nobody believes that a 7% mortgage is going to be around for long, so prepayment risk could grow. There are a bunch of things that address the question of why spreads are as wide as they are.? Our forecast has no rate changes until May of '24, when we think there will be a mild recession underway, and the Fed will start to cut slowly.hat’s the current loan performance outlook like?

If the Fed achieves their desired success in loosening labor markets, it means increasing unemployment. I was asked recently if there is a rule of thumb in regards to how much of an increase in unemployment creates an increase in serious delinquencies. That's an interesting question now. In the last two serious downturns, there has been huge intervention into the market from the government. So you can't just look at the data from the past. We're now less certain about what that relationship would be. It's reasonable to expect another policy intervention.? I've been asking lenders, do you believe that mortgage lending is still secured lending? Have these interventions severed the security from the loan? They say, "I don't know." The reason I ask is there might be questions about whether risk premiums are wide enough if there's acknowledgement that you no longer have access to the asset. If you think about capital markets and functioning and how pricing takes place, if you've lost the security, you would think risk premiums would rise. So maybe that's why a piece of why yield spreads are wider. There are other things like the Fed exiting mortgage-backed securities. They're the single biggest holder in the world. Who replaces them? It's going to be somebody that's going to care about yield. We've got time to figure it out because the Fed's portfolio is running off very slowly. You also have to ask, is there a reputational risk for mortgages in the banking sector now given Silicon Valley Bank's problems? What's going to happen with bank rules? Maybe that affects spreads. Nobody believes that a 7% mortgage is going to be around for long, so prepayment risk could grow. There are a bunch of things that address the question of why spreads are as wide as they are.? Our forecast has no rate changes until May of '24, when we think there will be a mild recession underway, and the Fed will start to cut slowly.