Trading Points: Banks, Interest Rates & MSRs
- R. Christopher Whalen
- Apr 16
- 8 min read
April 17, 2025 | Premium Service | A number of readers have asked us about what happens to financials and the broader markets under President Donald Trump? The answer is remarkably consistent with the basic view of markets and the economy prior to November of last year. The new addition of tariffs to the narrative has everyone’s attention, including economists and members of the Federal Reserve Board, but these same observers have been calling for a recession that has not materialized.
"The risk of recession would outweigh the risk of escalating inflation," says Federal Reserve Governor Chris Waller. If Trump's tariffs remain in place for some time, the economy is likely to slow to a crawl, Waller predicted Monday. As a result, interest-rate cuts will be warranted, Waller believes, even if the taxes on imports cause a spike in inflation.
"If the slowdown is significant and even threatens a recession, then I would expect to favor cutting the policy rate sooner, and to a greater extent than I had previously thought," Waller said in a speech to the Chartered Financial Analyst Society St. Louis.
So far in Q1 2025 bank earnings, however, there is still no clear sign of a recession in terms of consumer credit. Looking at current earnings reports, the picture is decidedly mixed, with some banks reporting higher credit expenses such as JPMorgan (JPM) and Citigroup (C), and others showing falling provisions for loss including Goldman (GS) and Wells Fargo (WFC).
The interest rate side of the house for US banks was flat to down in terms of revenue growth and funding costs, but banks with market facing businesses saw big gains in commissions and principal gains from the market volatility in Q1 2025. Overall, the major universal banks saw tens of billions in profits from market action caused by the Trump tariff gambit, gains that were an expense to investors. You starting to get the idea now?
But away from consumer credit, the picture in commercial exposures remains grim. Multifamily commercial mortgage-backed securities loan delinquencies for apartments jumped 98 basis points in March to 5.44%, according to data firm Trepp. “Delinquency rates for apartments were below 2% a year ago — meaning loss severity has risen 360 basis points over the past 12 months,” writes Multifamily Dive. “The March rate is the highest since December 2015, when it was 8.28%.”
Perhaps of greater significance, the Trump Administration is moving to clean up the mess left behind by the Biden Administration in multifamily real estate. HUD and the GSEs support almost two thirds of the $2.2 trillion market in commercial multifamily real estate. For a number of years we've heard colleagues inside the Federal Housing Finance Agency and the GSEs complain about multifamily and even wish out loud that the GSEs would exit the space.
We've made the observation that government insured multifamily assets are the new subprime market, but the US government holds much of the risk. FNMA holds about 21% of the $2.2 trillion in total multifamily debt (2024) and posted a $700 million reserve at the end of 2024 to offset the cost of fraud in the multifamily book. The table below comes from the most recent Fannie Mae 10-K.
To his credit, FHFA Director Bill Pulte has made a number of pointed public comments about "fraud" at the GSEs and also terminated a number of people based upon "facilitating fraud." Now The Real Deal reports on the sudden departure of two senior Fannie Mae executives in the multifamily area. We cannot wait to hear from HUD Secretary Scott Turner about the HUD multifamily book. Stay tuned.
Below follow some concise points on the economy, credit markets and specific sectors such as banking, mortgage lending and servicing. We also update readers on changes to our portfolio.
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