My scenario on US housing market :
1. Unemployment rate 8% at peak, sharp decrease after the pandemic.
2. Adequate fiscal response by the government, including helping people on mortgage payment, maybe helicopter money too?
Justification: Unemployment would no doubt sky rocket. Although I am not an expert in US employment situation, I don't think the government would do nothing to prevent unemployment rate above 10%. Also, the demand for services would resume to normal level, would leisure and catering should resume to higher-than-normal level after the pandemic. We should see a sharp increase then decrease in unemployment rate.
The government worldwide finally has shown to the world that they will do whatever it takes to help people using fiscal stimulus, not just monetary response.
Under these assumptions, the MBS market should remain more-or-less stable, MBS price may be affected by prepayment due to potentially lower mortgage rate, and higher unemployment also suggest an increase in default and foreclosure.
The question is whether such effect would severely affects mortgage REIT.
Most mortgage REITs operate at a high leverage, they buy, originate, service mortgages etc, then they borrow repo, or issue CDOs etc.
MBS ETF - MBB price is relatively stable, so I don't think there's a big problem with both CMBS or RMBS. There may be more problems with mezzanine loans though which could affect its profitability.
repo market is very active, and mREIT can use MBS as collateral to borrow money, so there's no problem with liquidity.
Consequently, dividend could drop for common stock, while preferred shares dividend remains constant.
Due to early liquidation of leveraged ETN issued by UBS, there's a fire sale last few days, now common stocks like NYMT, MITT are trading at 20% of its peak price in Feb. Others like TWO, NRZ, are trading at 30-ish % of its peak price. Dividend on its common stock (assuming continue to pay) is 20 - 50 ish %. and Their preferred shares are paying 10-30 ish %.
The mREIT market is possibly over-correct due to liquidation of ETN in these illiquid market, this may provide a good opportunity to buy with potentially high return. However, it wasn't clear when they will finish the liquidation, and possibly, we can see a lower price range for these mREIT.
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