Markets experience a junk tsunami: The pace of rating downgrades has materially accelerated over the past few weeks. Amount outstanding of newly minted fallen angel bonds has jumped to $149bn in Q1 2020, a higher amount than the previous peak reached in Q2 2009, Goldman says. pic.twitter.com/0BPS9s91zA
— Holger Zschaepitz (@Schuldensuehner) April 4, 2020
Junk bond spreads and the VIX Index, chart: pic.twitter.com/08hI8iIbej
— psgrimm64 (@psgrimm64) April 3, 2020
Credit downgrades pic.twitter.com/MHYvQ2cYop
— Win Smart, CFA (@WinfieldSmart) April 1, 2020
Should servicers start to go under, federal agencies will have to rush to find other companies to take over the loans. Borrowers could have more difficulty working with their mortgage companies on loan modifications to alleviate some of the pain of the pandemic. Others will have fewer places to go to find new loans.
If not solved, the epicenter of the nonbank crisis will be with Ginnie, which is part of the U.S. Department of Housing and Urban Development. The company guarantees $2.1 trillion in mortgage bonds containing loans to low-wealth borrowers, veterans and others.
While nonbanks service about two-thirds of all mortgages, they handle nearly nine out of ten mortgages backed by Ginnie, according to the Urban Institute Housing Finance Policy Center.