Mortgage Loan

Commercial mortgages could be on brink of collapse: Real estate investor Tom Barrack





Lawmakers are working to reach an agreement on a massive stimulus package to combat the economic impact of coronavirus. Real estate investor Tom Barrack, Colony Capital chairman and CEO, is warning commercial mortgages are on the brink of collapse and that we are seeing the beginning of “a second crisis that will occur in the financial markets” if immediate action is not taken by Congress. He joins “Squawk Box” to discuss.

An increase in interest rates, combined with a massive shutdown of the economy caused homeowners and potential homebuyers to back away from the mortgage market.

Total mortgage application volume fell 29.4% last week from the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($510,400 or less) increased to 3.82% from 3.74%, with points decreasing to 0.35 from 0.37 (including the origination fee) for loans with a 20% down payment. That is the highest level since mid-January.

“Several factors pushed rates higher, including increased secondary market volatility, lenders grappling with capacity issues and backlogs in their pipelines, and remote work staffing challenges,” said Joel Kan, MBA’s associate vice president of economic and industry forecasting.

Applications to refinance a home loan, which had been surging dramatically in the last month, fell 34% for the week but were still 195% higher than a year ago, when rates were 63 basis points higher. Refinances tend to be volatile, moving weekly with interest rates.

Mortgage applications to purchase a home are usually less volatile and less sensitive to weekly rate moves. Those applications decreased an unusually wide 15% for the week to the lowest level since August and were 11% lower annually. Buyers are clearly rattled by the economic shutdown, job layoffs and the massive drop in the stock market.

“Potential homebuyers might continue to hold off on buying until there is a slowdown in the spread of the coronavirus and more clarity on the economic outlook,” Kan said.

Purchase applications fell even more dramatically last week in states hardest hit by the coronavirus: down 35% in New York, 23% in California and 17% in Washington.

Mortgage rates have already pulled back this week, as the Federal Reserve is now pouring money into the mortgage-backed securities market to restore liquidity.

Lower rates, however, are unlikely to cause any surge in homebuying. Real estate agents and homebuilders are reporting a big drop in demand, and open houses are shuttered. They are doing virtual home tours, but sales are predicted to drop dramatically for the next few months.

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36 comments

  1. Better come up with a solution fast. Some of us serfs can't wait to go feral.

    Reply
  2. What everyone needs to do is stop buying homes, automobiles, phones that we can not afford. Start saving money again. # paycheck to paycheck # america is broke.

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  3. Let the mortgages collapse…. We have chaos. Don't tell us there will be chaos!

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  4. Stop cutting him off??

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  5. it's not complicated. it is actually very simple.
    1. Private equity firms are buying up what would be adorable housing across the country. this demand is inflating home prices for Main street.
    2. main streets including my pension fund has been marked to market via market manipulation.
    3. these so called nonbanks are getting money for basically zero percent via uncle Sam putting real returns on investments into to pocket of a few firms, while causing harmful inflation of home prices on main street. wall street needs to return to focus of economic growth of U.S. industry. Main street

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  6. All the begging bowls are out..Free money from the tax payers.

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  7. They have not reached a deal – economy is going to collapse soon – NYC is broke streets are empty

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  8. Barrack looks really desperate for government bailout.

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  9. Re inflating the bubble is dangerous it will lead to a sovereign debt crisis.

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  10. What does a trillion dollars look like. I'd like to see it in one Pile. Just so i could get an idea. 1 dollar bills please. I want to see the stairway to heaven. Or hell.

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  11. Looks like your House of Cards is finally collapsing…….for ever 💋

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  12. I don't see the government or fed doing anything for small to medium business right away. We will probably be cleaning up the mess after shirt hits the fan with them.

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  13. This is a great point. Kinda ridiculous it could happen after 2 weeks of quarantine.

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  14. The U.S. stimulus package does exactly that thru direct deposits, you'll get your rent money, GREEDY PARASITE

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  15. Corporate banks don't need another bailout. Get the money into the hands of unemployed American consumers & small business owners, so they can pay their rent on time

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  16. I HATE AMERICA

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  17. Just another pig begging to have the trough filled up for him. Has the gaul to say the gov't created this problem. Sorry gov't didn't create CV-19. You levered up, managed with no margin of error so you could maximize wealth. "Colony Capital is in great shape." Bald-faced lie. Colony Capital has been restructuring b/c it was a complete mess. Get lost. Take your lumps.

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  18. The truth is that since the 2008 implosion, there has been no real estate market. It has been completely artificial ever since. The only difference now is that the game of Let's Just Pretend is over.

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  19. Translation: Marking assets to market when there is no market = 0
    Conclusion: There is no bank capital; the banks are insolvent.

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  20. Why doesn't that young guy stfu and let the man speak instead of interupting with stupid questions!

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  21. This current situation only surprises the uninformed and those that have not educated themselves on the decisions that have been made in the last 10 / 12 years, especially.

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  22. When will these idiots stop saying the economic pain from the corona virus, the economic pain is from debt and over leveraging, from corporate America to the average citizen. Incentivized by the Fed….If everyone wasn’t leveraging to the hill and being irresponsible they would be able to survive this over blown exaggerated fear mongering crisis, all in order for Washington to fleece the taxpayers once again.. criminal!!!!

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  23. So the little guys are the ones not getting help and yet they're the ones who prop up the financial market?

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  24. Andrew – Tell us how this impacts you?, Tom – Others are worse shape (obfuscate – hand wave, don't look here, look at everyone else). What BS. He's just next in line asking for a bailout.

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  25. The Fed and Treasury bails out bankers and Wall St investors, who were on the verge of Bankruptcy w/o any ability to repay their own debts or margin calls, and no future income, with an analogous Main St. negative credit-rating of 400. What does the Fed do? They buy their "Troubled Assets" at pre-crisis prices. That's like your local bank buying your house at the pre-crisis assessment with you having a credit rating of 400 and telling them you're unemployed! 🙄😂🤮

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  26. If Tom Barrack is saying something, it is to cover his own ass. Don't think for a minute he gives a crap about you or any other working stiff. Oh, and did I mention he is close friends with Trump. Enough said.

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  27. These billionaires want it all. They want your property, they want your savings (if you have any) & they want your social security check. They want it all.
    And they will get it.

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  28. lol It's not complicated. Colony Capital lent money to people that overpaid for their commercial real estate. People buy big buildings now just to earn 2 – 3% ROI and can't absorb a month or two of interruption.

    Small business owners that are tenants (that will likely pay rent late) should be able to continue to operate normally once the commercial real estate owners default on their mortgages and the property has new owners at a more reasonable price. Maybe even some of the tenants themselves can own some of the real estate where they have simply been paying rent.

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  29. If ppl don’t get more than 3-4000 bucks within the next month they’re gonna be screwed. You will see a lot of anarchy start up. Just being real with you lol

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  30. This anchor needs to stop interrupting the speaker

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  31. censored by ???? mmmm wonder whos so afraid of critical thought

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  32. comments removed as usual !

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  33. All these huge companies are so poorly mismanaged that a 2 week interruption throws everything into collapse.

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  34. We can fix all this if we bring back the glass Stegal act that separates bank from investment firms . They can’t use public money like 401 k pension plans or mortgage back securities to invest in the stock markets . We need regulations stop gambling with American futures . Simple and plain.

    Reply
  35. Eventually when you keep printing, which this crisis will cause, the us dollar will collapse.

    It's like when I keep borrowing from you. And every month I give you a ( I owe u note). My notes get passed throughout the neighborhood as currency because I'm the baddest mofo. Eventually I get severely sick and just keep giving you notes to pay off notes on interest…

    Guess what happens when ppl want there money?

    Reply
  36. Just pull more gas on the fire. The FED need to go.

    Reply

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