As Forbearance Protections End, Nonbank Mortgage Lenders Face High-Volume Processing Tests, Ginnie Mae Risks​​​​​​

Tech-savvy millennials fled to the suburbs during the coronavirus pandemic, fueling a hot housing market that enabled nonbank and fintech mortgage companies to grab a big piece of the growing market share, churning out loans at a faster pace than more traditional bank lenders, according to a Morning Consult report. That booming market has so far shielded a vulnerability. Homeowners had multiple options to buoy their finances, from refinancing opportunities to extra unemployment insurance and stimulus checks. As those programs come to a close this year, most homeowners that took advantage of coronavirus-era policies to delay their loans have now exited forbearance, staving off a widespread, 2008-style foreclosure crisis that many feared at the start of the pandemic. But for a portion of borrowers — largely Black, Hispanic and first-time homeowners — the end of housing programs could pose significant difficulties. The issue has to do with nonbank servicers that have never dealt with the number of loan modification requests and foreclosures that policymakers expect, and who aren’t required, like banks, to hold capital in reserve to offset the costs. These servicers, which handle the day-to-day managing of a mortgage, including foreclosures, have aggressively taken market share since the Great Recession and the regulation of bank mortgage lending that followed. Mortgage-servicers and other industry-watchers were on alert for these issues early in the pandemic, even unsuccessfully lobbying the Federal Reserve for a liquidity facility for nonbank mortgage-servicers. And though a widespread liquidity crisis reminiscent of the 2008 crisis now appears unlikely, experts are worried about logistical challenges with everything from high-touch transactions like loan modifications or foreclosures to a lack of infrastructure to service loans in foreclosure.​​

Jobless Claims Reverse, Fall to New Post-Lockdown Low of 360K

The number of new applications for jobless benefits fell to a new post-lockdown low last week, according to data released today by the Labor Department, The Hill reported. In the week ending July 10, seasonally adjusted initial claims for unemployment insurance fell to 360,000, down by 26,000 from the previous week’s revised level of 386,000. After rising in the previous week, jobless claims fell to their lowest level since March 14, 2020 — when claims totaled 225,000 shortly before the COVID-19 pandemic shattered the economy. The number of new applications for jobless benefits fell to a new post-lockdown low last week, according to data released Thursday by the Labor Department. In the week ending July 10, seasonally adjusted initial claims for unemployment insurance fell to 360,000, down by 26,000 from the previous week’s revised level of 386,000. After rising in the previous week, jobless claims fell to their lowest level since March 14, 2020 — when claims totaled 225,000 shortly before the COVID-19 pandemic shattered the economy. As of June 26, there were more than 13.8 million Americans on some form of jobless aid, less than half of the 30.6 million on unemployment benefits during the same week last year.​​​

Many Jobs Lost During the Coronavirus Pandemic Just Aren’t Coming Back

Job openings are at a record high, leaving the impression that employers are hiring like never before. But many businesses that laid off workers during the pandemic are already predicting they will need fewer employees in the future, the Wall Street Journal reported. As with past economic shocks, the pandemic-induced recession was a catalyst for employers to invest in automation and implement other changes designed to curb hiring. In industries ranging from hotels to aerospace to restaurants, businesses have reviewed their operations and discovered ways to save on labor costs for the long term. Economic data show that companies have learned to do more with less over the last 16 months or so. Output nearly recovered to pre-pandemic levels in the first quarter of 2021 — down just 0.5% from the end of 2019 — even though U.S. workers put in 4.3% fewer hours than they did before the health crisis. In low-wage sectors such as hospitality and leisure, the push to cut staffing costs is driven partly by short-term labor shortages and expectations that wages will continue rising due to a combination of market forces and possible changes to local and federal laws. In May 2020, as COVID-19 surged in the U.S. and the travel and hospitality industries cratered, the chief executive of Host Hotels & Resorts Inc., a large operator of Hyatt and Marriott hotels, described the pandemic “truly as an opportunity to redefine the hotel operating model.” CEO Jim Risoleo said the hotel chain planned to limit housekeeping at many of its properties and reconfigure its food and beverage operations. “It is really going to be opt[ing] in to housekeeping services as opposed to opt[ing] out going forward,” he said during a November call with analysts and investors. The company also reduced management staff by 30% in 2020 in its food and beverage department and said the changes would be permanent. (Subscription required.)​​​

Democrats Press SBA on Employees Linked to Loan Fraud

Top House Democrats on Wednesday urged the Biden administration to provide details on the extent to which federal employees and contractors helped criminals fraudulently obtain small business aid during the COVID-19 pandemic, Politico reported. House Select Subcommittee on the Coronavirus Crisis Chair Jim Clyburn (D-S.C.) and Small Business Chair Nydia Velázquez (D-N.Y.) asked the head of the Small Business Administration to disclose more information on the incidents, which have come to light in recent law enforcement and inspector general investigations of the agency’s Economic Injury Disaster Loan program. In their letter to SBA Administrator Isabella Guzman, the lawmakers zeroed in on a case involving former Seminole County tax collector Joel Greenberg, an associate of Rep. Matt Gaetz (R-Fla.). Greenberg in May pleaded guilty in a child sex-trafficking case that included charges that he conspired with and bribed an SBA employee in a scheme to fraudulently obtain EIDL aid. Separately, the SBA’s inspector general revealed last year that the agency fired employees and contractors involved in approving loans to themselves or inappropriately influencing loan approvals. The problems highlighted by the lawmakers are just the latest in a controversy surrounding the SBA’s handling of the COVID-19 disaster loans, after the agency struggled to deliver aid to ailing employers and faced concerns about widespread fraud. The SBA last month said it was transferring the management of pandemic-related EIDL aid to a different division as part of an overhaul.​​​

Analysis: Reddit Traders Are Upending the World of Credit Investing, Too

Distressed investors have long had to have thick skins — taking criticism as predators, even as they sometimes rescue firms no one else will touch and generate returns for pensions, endowments and foundations. But life in the business is getting even harder, as they can no longer count on a predictable stock market to hedge massive, multipronged bets, according to a Bloomberg analysis. With equities swept up in the whims of exuberant day traders, some funds are now being forced to rethink their business models. “It’s become a much harder calculus to even consider,” said Scott Hartman, the global co-head of corporate credit and trading at $14 billion investment firm Varde Partners. “Frankly, many funds have decided to stay away from shorting these stocks altogether.” Granted, there are other investment opportunities — some distressed funds are pivoting to private lending and emerging-market plays — and often other ways that money managers can hedge their exposures or engage in forms of capital-structure arbitrage. But fiscal and monetary stimulus have greased markets so thoroughly that many of the riskiest companies are now breezing through debt walls with cheap new financing, rather than running into the kinds of dead-ends and defaults that generate restructurings or profitable loan-to-own plays. Indeed, many fund managers say that beyond disrupting their ability to hedge, retail traders are increasingly propping up troubled firms, further limiting the universe of investment opportunities. Clothing chain Express Inc., prison operator Geo Group Inc., coal miner Peabody Energy Corp. and others have, like AMC, seized on their popularity among day traders to seek equity financing — an option historically out of reach for firms with their debt loads.​​​

Special abiLIVE Webinar Next Thursday to Feature Pointers on Pursuing a Career Path in Commercial Fraud/Litigation

Hosted by ABI's Commercial Fraud and Young and New Members Committee, experts on a special abiLIVE webinar will provide tips and real-life stories from industry experts on how best to pursue a career path in commercial fraud and fraud litigation. Click here to register for FREE.​​​

Sign up Today to Receive Rochelle’s Daily Wire by E-mail!
Have you signed up for Rochelle’s Daily Wire in the ABI Newsroom? Receive Bill Rochelle’s exclusive perspectives and analyses of important case decisions via e-mail!

Tap into Rochelle’s Daily Wire via the ABI Newsroom and Twitter!