with Brent D. Griffiths

THE TICKER

Millions of homeowners are set to miss their monthly mortgage payments today.

That’s a sign of the economic shock brought on by the spreading coronavirus pandemic — and the leading edge of a potential calamity that could cascade through the broader financial system.

The missed payments themselves don't augur an immediate wave of foreclosures such as the one that fueled the housing crisis and pushed the country to the brink during the Great Recession. The latest coronavirus relief package allows distressed borrowers up to a year of forbearance on home loans guaranteed by the federal government, a $7 trillion pool covering most first-time homeowners. (The Consumer Financial Protection Bureau has posted a guide for those seeking to delay payments.)

But the move shifts the squeeze onto mortgage lenders, who owe payments on home loans they resold to bond investors as debt instruments. “Although the housing finance system is in no way a contributor to the underlying crisis, if the federal government does not act soon, large parts of the market will grind to a halt as a result of key market participants going insolvent and the disruption could be nearly as large as — or possibly even exceed — the last housing induced crisis in 2008-2009,” Beacon Policy Advisors writes in a note.

Now, the industry — backed by an array of other players in housing finance — is urging the Federal Reserve to step in and help bridge the gap by lending to it. Most expect the central bank to do so. Lenders have their backs against the wall after failing to secure direct help in the $2.2 trillion stimulus package President Trump signed Friday.

Yet the Fed has not announced it will ride to the rescue. “Everyone knows what the solution is. They just need the Fed to act, and the Fed has been very quiet,” Cowen Research analyst Jaret Seiberg tells me. “It would be immensely reassuring to get this program this week. And there’s no reason to add more instability to the housing finance system by leaving this unanswered.”

That said, Seiberg notes mortgage lenders have a little more wiggle room when it comes to their next round of payments. “The servicers don’t make payments to bondholders until the middle of the month, and they’re supposed to have enough liquidity to handle at least a month of missed payments.”

The industry’s exposure is substantial. By its own math, if a quarter of borrowers can’t make their payments, “mortgage industry officials say they could need nearly $40 billion in federal help over the next three months and $100 billion over nine months,per my colleague Renae Merle.

And losses, The Hill’s Sylvan Lane writes, “will pose severe challenges for the Federal Housing Finance Agency (FHFA), which is responsible for guaranteeing and securitizing trillions in home loans to keep credit flowing and affordable mortgages available. ‘If this is a short-term event — say six to eight weeks — we believe that Fannie and Freddie and the servicers are equipped financially to be able to get through this time,’ said FHFA Director Mark Calabria in a CNBC interview last week… ‘If this goes beyond that, then we may be having to look for public assistance.’”

Policy analysts expect a Fed intervention is imminent. “There is little that we can feel confident about at this point, but we firmly believe the Federal Reserve will announce a mortgage servicing liquidity facility in the coming days,” Compass Point’s Isaac Boltansky writes. “Policymakers have committed to a forbearance framework for certain mortgage borrowers, which is undoubtedly the appropriate response under the circumstances, but they must now settle the bill for that policy choice.”

MARKET MOVERS

 Dow caps worst-ever first quarter, slides more than 400 points: “Wall Street concluded one of its worst-ever starts to a year with markets staggering under trillions in losses from an economy paralyzed by the coronavirus,” my colleague Jacob Bogage reports.

“The Dow Jones industrial average plunged more 400 points, or roughly 1.9 percent, for the worst first-quarter finish of its 135-year history. The Standard & Poor’s 500 index also neared historic lows. The virus has killed thousands across the globe, including in the U.S. The national lockdown imposed to contain the virus has sent the American economy into a self-induced seizure and stocks into a steep decline.” 

It was also the most volatile month ever for the market, via Bespoke Investment Group

Global stocks, U.S. futures selling off. “Futures tied to the Dow Jones Industrial Average dropped 3%, suggesting that blue-chip stocks will decline a day after U.S. equities closed out their worst quarter since the financial crisis. European stocks also declined, with the pan-continental Stoxx Europe 600 index retreating 2.8%,” the Wall Street Journal's Avantika Chilkoti and Frances Yoon report. The action follows President Trump's grim assessment of the likely U.S. death toll (more on that below). 

Jeffrey Gundlach, for one, sees the worst for the market yet to come this month. The DoubleLine Capital chief investment officer said “we’re going to get something that resembles that panicky feeling again during the month of April,” Bloomberg reports

Goldman sees 15 percent jobless rate, annualized 34 percent GDP decline: “Goldman Sachs has revised its view on how the coronavirus will impact the U.S. economy, seeing a sharper downturn than originally thought followed by an even bigger upturn,” CNBC's Jeff Cox reports.

“Among its expectations are that the unemployment rate will peak at around 15 percent later this year, well above original expectations for 9 percent. Gross domestic product is forecast to fall 9 percent in the first quarter followed by a stunning 34 percent plunge in the second quarter that would be by far the worst period in post-World War II history. Goldman previously had forecast respective GDP drops of 6 percent and 24 percent and a top unemployment rate of 9 percent.”

  • Then predicts sharp recovery: “After that, Goldman expects the U.S. to see a spike higher in activity, featuring a 19 percent surge in Q3. That would take the U.S. from the worst quarter in history to its best.”

But economists acknowledge there are still too many unknowns: “…  The simple fact that economic outcomes hinge on something that’s beyond the professional competence of most economists to forecast: the trajectory of the disease itself,” Bloomberg News's Ben Holland reports.

“That's because such an outlook rests on what happens with the virus. ‘We have no certainty the virus will be gone by the end of the second quarter,’ said Nobel prizewinner Joseph Stiglitz, a professor at Columbia University in New York. If it ‘lasts through the summer, then all the effects will be amplified.’ Beyond that, there is an array of questions for economists to grapple with — and those doubts increasingly undermine projections for what’s known as a ‘V-shaped recovery,’ in which lost output is quickly restored.” 

CORONAVIRUS FALLOUT

In the United States:

The White House coronavirus task force on March 31 presented a grim picture of where the U.S. could be headed over the next couple of months. (The Washington Post)

— White House releases grim prediction for death toll: “[Trump] and the physicians advising the federal pandemic response delivered a bleak outlook for the novel coronavirus’s spread across the country, predicting a best-case scenario of 100,000 to 240,000 fatalities in the United States and summoning all Americans to make additional sacrifices to slow the spread,” my colleagues Philip Rucker and William Wan report.

Trump "contradicted many of his own previous assessments of the virus… as he instructed Americans to continue social distancing, school closures and other mitigation efforts for an additional 30 days and to think of the choices they make as matters of life and death.”

  • Governors plead for more supplies: “As they try to combat a worsening pandemic, several have complained about chaos and disarray within the system and a lack of guidance about how they can secure lifesaving supplies, according to interviews and documents from officials in more than a dozen states,” my colleagues Toluse Olorunnipa, Josh Dawsey, Chelsea Janes and Isaac Stanley-Becker report.
  • Trump administration frequently used the Defense Production Act before the virus: “The law’s frequent use, especially by the military to give its contract priority ratings to jump ahead of a vendor’s other clients, has prompted those most familiar with it to question why the administration has been so hesitant to tap it for a public health emergency …,” the New York Times's Zolan Kanno-Youngs and Ana Swanson reports.

Corporate fallout: 

  • Walmart to test workers' temps. The retail giant will also start providing them with gloves and masks, “stepping up its safety protocols as it hires roughly 5,000 employees a day to meet heightened demand during the coronavirus crisis,” my colleague Taylor Telford reports.
  • Hospitals continue to burn through cash: “U.S. hospitals are burning through cash so quickly on the front lines of the nation’s fight against the coronavirus pandemic that the more than $100 billion they’re set to get from the federal emergency stimulus package might not be enough,” Bloomberg News's Shruti Singh and Lauren Coleman-Lochner report.
  • Amazon is struggling to find its way: America's largest online retailer is being pulled in many directions. That includes facing demand that rivals the holiday season without the months to plan for it while warehouses are operating with half the typical number of employees, the Wall Street Journal's Dana Mattioli and Sebastian Herrera report. Workers have also pushed back on the company, including a New York employee who was fired after organizing a strike a Staten Island warehouse. New York Mayor Bill de Blasio has ordered that firing to be investigated. (Amazon CEO Jeff Bezos owns The Post.)
  • Private equity firms lobby for small business loans. “The Wall Street groups are taking aim at the so-called affiliation rule, under which small businesses can be barred from accessing the rescue funds if they are backed by a private equity firm whose portfolio companies collectively have a workforce that exceeds the 500-person limit," the FT reports

International fallout:

  • What Asia's new cases mean: Even when the number of new cases starts to fall, travel barriers and bans in many places may persist until a vaccine or treatment is found,” the Times's Motoko Rich reports of countries clamping down after a rise in imported cases.
  • Asian factory activity plunges: “Factory activity contracted sharply across most of Asia in March as the coronavirus pandemic paralyzed economic activity across the globe, with sharp falls in export power-houses Japan and South Korea overshadowing a modest improvement in China,” Reuters's Leika Kihara and Daniel Leussink reports.
  • Europe's food supply is being threatened: “European countries say they have enough food, for now. But there are concerns about what could happen if the crisis drags deep into the growing season, as well as fears for the livelihoods of their farmers,” my colleagues Michael Birnbaum and Quentin Ariès report from Brussels about the struggle to get enough workers amid border lockdowns. 
  • Gambling revenue has collapsed in Macao: “… By almost 80 percent from a year earlier, as the Chinese territory reels from travel restrictions and social distancing measures put in place since the onset of coronavirus,” my colleague  Shibani Mahtani reports.

MONEY ON THE HILL

Trump pushes for infrastructure in next round of economic rescue. The Post's Jeff Stein and Seung Min Kim: "Trump said Tuesday that a $2 trillion infrastructure package should be part of Congress’s next response to the coronavirus pandemic, reviving a 2016 campaign pledge to ramp up construction projects despite public health guidance that Americans should stay home and isolated to the greatest extent possible.

“Citing extraordinarily low interest rates that have reduced the cost of federal borrowing, Trump said on Twitter that now ‘is the time’ to push forward with an infrastructure package in response to the severe economic downturn caused by the coronavirus that causes the disease covid-19. Numerous House Democrats have also discussed in recent weeks advancing infrastructure legislation as part of their response to the coronavirus pandemic.”

— Dems press for Trump to quickly name IG to oversee bailouts: “Three senior Senate Democrats are asking Treasury Secretary Steven Mnuchin to honor the terms of a new coronavirus law that establishes independent oversight to monitor the Trump administration’s handling of a $500 billion funding program, according to a copy of a letter obtained by The Post,” my colleague Jeff Stein reports.

“Mnuchin brokered many of the terms of the spending deal with Democrats last week, and in their letter to him they expressed alarm about Trump’s immediate signing statement, which some interpreted as an attempt to weaken the reporting requirements of a new inspector general. The letter, signed by Senate Minority Leader Charles E. Schumer (D-N.Y.) and Sens. Sherrod Brown (D-Ohio) and Ron Wyden (D-Ore.), also said Trump must ‘without delay’ nominate the new inspector general to oversee and probe the funding.”

House Democrats are facing their own obstacles, “from the logistical limitations of working remotely to [Trump’s] early resistance… that could undermine oversight of the biggest economic rescue package in U.S. history,” Politico's Kyle Cheney and Melanie Zanona write

Senators urge airlines to issue refunds: “Nine Democratic U.S. senators … urged the chief executives of 11 major airlines to issue full cash refunds to customers canceling flights during the coronavirus pandemic after Congress approved a massive rescue package for the hard-hit industry,” Reuters's David Shepardson reports.

“Most U.S. airlines are temporarily waiving coronavirus-related change and cancellation fees but are not issuing cash refunds.” 

TRUMP TRACKER

TRADE FLY-AROUND:

Huawei warns U.S. of retaliation by China: “The chairman of Huawei Technologies Co. warned the U.S. to expect countermeasures from the Chinese government if it further restricts the technology giant’s access to suppliers, as the company’s profit last year grew at the slowest pace in three years,” the WSJ's Dan Strumpf reports.

“Eric Xu, Huawei’s chairman, said he believes Beijing would respond with restrictions of its own on American companies operating in China if the U.S. follows through with reported plans to cut off Huawei’s access to a major Taiwanese chip supplier. The Trump administration is moving forward with new restrictions aimed at cutting off Huawei’s access to Taiwan Semiconductor Manufacturing Co., the world’s largest contract-chip manufacturer, according to people familiar with the situation.” 

TRUMP WATCH:

U.S.-Saudi oil alliance push by White House is on the back burner: “That the concept was even considered at high levels reflects both the depth of the crisis facing the global oil industry as well as its growing importance to the U.S. economy. A few weeks ago, proposals for Washington to work together with oil producers to curb supply to the global market would have been dismissed for violating U.S. antitrust laws,” Reuters's Timothy Gardner reports.

“The idea of a U.S.-Saudi alternative to the Organization of the Petroleum Exporting Countries, of which Saudi Arabia is the de facto leader, “has been floated but not at the stage of something that is being seriously considered,” said one of the sources, who all spoke on condition of anonymity.” 

POCKET CHANGE

Xerox ends hostile takeover bid for HP: “Xerox Holdings Corp. is pulling the plug on its hostile bid to buy larger rival HP Inc. after the coronavirus pandemic undermined the copier maker’s ability to pull off the debt-laden merger,” the WSJ's Cara Lombardo reports.

“Xerox said … it is ending both its more than $30 billion tender offer and a proxy fight to replace the printer and PC maker’s board. Xerox concluded it is no longer prudent to pursue the deal given the public health crisis and resulting market swoon … The move puts the kibosh on one of the biggest mergers in the works and underscores the blow that the coronavirus has dealt to the world of deal making.” 

OPINIONS

DAYBOOK

Today:

  • The Institute for Supply Management releases its March manufacturing survey

Thursday:

  • The Labor Department releases its weekly report of initial unemployment claims
  • Walgreens Boots Alliance, Dave & Busters, Carmax and Chewy are among the notable companies reporting their earnings

Friday:

  • The Labor Department releases the monthly jobs report

THE FUNNIES

BULL SESSION