Businesses Upbeat But CFPB Screams “Help”

Businesses Upbeat But CFPB Screams “Help”

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The latest Beige Book, released March 3rd and based on information collected through February 22nd, indicates that most businesses are optimistic with the roll-out of the COVID-19 vaccine. Employment levels, already slowly on the rise, are expected to continue that trend. Several districts are even reporting upward pressure on wages to attract and retain employees.

Single family housing markets are reported to be strong in the Boston, Richmond, Atlanta, Chicago, Kansas City, Dallas and San Francisco markets. Minneapolis and Cleveland reported mixed activity; and Philadelphia and St. Louis remain about the same as the last survey.

New York was the only region to report declines. Steep price drops and robust activity were reported in high-end real estate. Residential rents are down anywhere from 10-25%, depending on the borough. Rental vacancies are at levels not seen in decades, but did start to pick-up in January. New York contacts also report accelerating wage growth.

With the most upbeat Beige Book report that we’ve seen in a year, it was curious that the Consumer Financial Protection Bureau (CFPB) issued its own report warning that over 11 million families are at risk of losing their homes. This is based on data on how many families are behind on their mortgage or rent payments.

Eviction protections for renters have already been extended through March and could very well be extended again. If not, according to the CFPB report, 9% report they will likely be evicted.

This is a tough balancing act, because the landlords are struggling, too. They can only dig into their own pockets for so long before they come up empty-handed. However this is handled, it will affect commercial real estate (CRE) as any apartment building with five or more units is considered commercial, not residential. But, residential real estate will also take a hit.

The federal foreclosure moratorium for 1-4 family residences is scheduled to expire at the end of June. Lenders are typically more willing to work with borrowers who live in the mortgaged homes.

Many homeowners are already working with their lenders, and have paused or reduced their mortgage payments through forbearance. That has dramatically reduced the number of foreclosures. Yet, according to the report, 1 million homeowners are still more than 90 days delinquent. Over a quarter of them are not in forbearance.

The first thing a struggling homeowner should do is reach out to their lender. Banks want to own loans, not homes. If they can find a way to keep buyers in them, they will. That is always true, but perhaps even more so now, given the upbeat Beige Book Report.

That being said, there will be foreclosures and there will be evictions. Hopefully far fewer than the CFPF suggests and hopefully far fewer than during the real estate bubble burst that caused the Great Recession a little more than a decade ago. For the most part, our nation’s banks are prepared for it.

Reserves for potential loan losses were much higher in 2020 than in any recent year. But we are not sitting around hoping for the best.

  • The 49 banks listed on page 7 each have:
    - At least 25% of total loans tied up in resident real estate;
    - Delinquent residential real estate loans that exceed 2.5% of the total; and
    - The value of residential real estate already repossessed is greater then $200,000.

You can see that star-ratings on these banks range from 5-Stars all the way to Zero-Stars. That’s due to Bauer’s holistic approach to bank rating. 5-Star and 4-Star rated banks have other areas strong enough to overcome potential losses in their residential real estate loan portfolio, whereas the lower rated banks do not have any such bright spots.

We do want to call your attention to two banks, however: Wells Fargo Bank, N.A. and Wells Fargo Bank South Central in TX. Their parent company, Wells Fargo & Company, is designated as systemically important both nationally and globally and, according to the Federal Reserve, is also subject to global market shocks and counterparty defaults. Wells Fargo needs more than just the U.S. to turn things around. It needs the whole globe.

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