| Dear Friend, I’ve been writing about the health and economic dangers from COVID-19 for weeks now in my Thoughts from the Frontline. But of course I can only cover so much in that short weekly missive. That’s why we have been continuing the conversation in my macro research service, Over My Shoulder. Now, let me say this again: COVID-19 is not the end of the world. It’s not the Zombie Apocalypse. We will make it through this crisis, as we have made it through many others before. But we also shouldn’t downplay it. I think it’s become abundantly clear by now that this pandemic will have serious consequences. And at this point, we can’t be sure which will be worse, the impact on public health or the US and global economy. One of our recent Over My Shoulder issues shocked me to the core. My old friend Barry Habib, a mortgage industry executive and the founder and CEO of MBS Highway, detailed in that report the potential consequences of the COVID crisis on the housing market. To make a long story short, we might soon be looking at the Great Housing Collapse 2.0. And this time, the culprits may be low interest rates and a little regulation that is actually meant as a benevolent relief measure for homeowners. It’s called “forbearance.” As you know, the Fed, trying to be helpful, has been lowering interest rates and may lower them even further—usually a good thing for home buyers and homeowners. But not now... As you can imagine, when interest rates drop dramatically, there is an increased incentive for many people to refinance their loans more rapidly. [...] This servicing runoff creates losses for that mortgage lender who is servicing the loan. The more loans in a mortgage lender’s portfolio, the greater the loss. [...] But at the same time, lenders typically experience an increase in new loan activity because of the decline in interest rates. This gives them additional income to help overcome the losses in their servicing portfolio. But the coronavirus has caused a virtual shutdown of the US economy, which has created an unprecedented amount of job losses. This adds a new risk to the servicer because borrowers may have difficulty paying their mortgage in a timely manner. And although the servicer does not own the asset, they have the responsibility to make the payment to the investor, even if they have not yet received it from the borrower. Under normal circumstances, the servicer has plenty of cushion to account for this. But an extreme level of delinquency puts the servicer in an unmanageable position. —Barry & Dan Habib in Over My Shoulder, Mar. 26, 2020 For the same reason, government-ordered “forbearance”—that means a grace period for cash-strapped homeowners in which they don’t have to pay their mortgage—puts the servicers in an even greater bind. This will not end well. It’s a very serious threat to our economy. But I bet you haven’t heard about it anywhere in the mainstream media. I want you to have this kind of vital information from Barry and our other expert contributors—because it literally can make the difference between being financially prepared and being caught unawares when the crisis is already upon us. That’s why I’d like to invite you to join us at Over My Shoulder today. For a short time, we’re lowering the already reasonable price for an Over My Shoulder subscription to $9.95 per month... a 33% savings off the retail price. Once you sign up, you’ll get an email from us three to four times a week. Patrick Watson and I will send you carefully vetted reports and articles by our expert contributors—like Howard Marks, Anatole Kaletsky, Simon Hunt, George Friedman, Bruce Mehlman, Louis Gave, and many others. Their high-quality analysis and commentary focus on the most significant US and world events, economic or (geo)political... for a fraction of the price you’d normally pay for their insights. In fact, much of it wouldn’t even be accessible to anyone but institutional investors. But you’ll have to act fast—this offer ends on April 13. I hope you decide to come on board. The “Corona Crisis” really is a serious issue that, in the manner of a Rube Goldberg machine, unleashes a chain reaction whose wide-ranging results are not entirely foreseeable yet. In Over My Shoulder, we’ll talk about all of it. Click here to join us today. Your always concerned but not frightened analyst, John Mauldin
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