TheMReport — News and strategies for the evolving mortgage marketplace.
Issue link: http://digital.themreport.com/i/409279
Th e M Rep o RT | 55 O r i g i nat i O n s e r v i c i n g a na ly t i c s s e c O n da r y m a r k e t SECONDARY MARKET the latest labor market index improves after Four-month slowdown A slight recovery puts an end to the skid. a fter slowing for the fourth straight month in August, the Federal Reserve's gauge of conditions in the labor mar- ket made a slight recovery in September. The Fed's labor market condi- tions index, which the central bank said it will now release on a monthly basis, added 2.5 points in September after increasing only 2 points in August—its low- est pace of growth in 13 months. As a broad measure of the market, the Fed's index includes a number of indicators that go beyond just the national unemployment rate, including average hourly earnings, hiring rates, and labor force participa- tion, among others. It has been cited by Fed researchers as a more comprehensive tool for the central bank's policymakers to use when considering their next move, such as ending bond purchases—a likely development this month—or raising interest rates, which they're expected to do by the middle of 2015. After slowing down in January, the index accelerated through much of the year's first half, posting an improvement of 4.9 points in March before hit- ting peak growth of 7.1 points in April as the economy started a streak of strong monthly payroll gains. The latest increase comes as the labor market reportedly added 248,000 new jobs, helping to bring the unemployment rate down to 5.9 percent. At the same time, however, the labor force participation rate continued to drop as more Americans gave up on looking for work. According to the gov- ernment's, numbers, the national U-6 unemployment rate—which includes people marginally at- tached to the workforce and those working part-time for economic reasons—is 11.8 percent. nearly One-third of community Banks cutting mortgage Holdings Increased regulation and compliance costs are to blame. n early one-third of community banks plan for their mortgage operations to come up short of last year as regulatory costs and challenges make the sector less appealing, a new survey shows. Out of 884 community bankers currently active in the mortgage space, 31 percent expect their institution's residential mortgage holdings at the end of the year will be less than their level last year, according to findings released by the Federal Reserve and the Conference of State Bank Supervisors. Of those who anticipate reductions in the dollar value of their mortgage holdings, most pointed to increased regulation and compliance costs as the reason. Notably, a nearly equal portion of respondents—28 percent—say their holdings will increase this year compared to 2014, thanks to increased demand for loans. The remaining share of respondents doesn't anticipate any substantial change. As the primary source of credit for their areas, most community banks rely heavily on mortgage lending for their business. According to the survey results, 755 bankers polled listed one- to four-family mortgages as one of their primary business lines, putting it just above commercial real estate as the top business for community institutions. Should banks increasingly decide to scale back their mortgage business, the consequences for local housing markets could be enormous, the report's authors explain. "[R]esearchers and policymakers will need to evaluate the impact of how these banks respond to the new rules on the local communities in which these banks operate and to overall availability of credit, especially customized credit designed to meet the needs of the borrower," they write. Some of the biggest rules affecting the mortgage sector at the moment include the qualified mortgage (QM) and ability-to- repay requirements, which are designed to excuse lenders from liability on defaulted loans so long as they prove they made a reasonable effort to determine the borrower's ability to pay back on their mortgage. Though many lenders in the industry have announced their intentions to only generate loans that fit under the QM umbrella in response, 38 percent of community bankers said they're still making non-QM loans, "but only on an exception basis." A further 26 percent voiced their willingness to lend outside the QM space in general. Twenty-nine percent said they haven't strayed from the QM protections. At the moment, the vast ma- jority of active community lend- ers say less than 10 percent of their loans made in 2013 do not comply with the QM guidelines, though a sizable share said 80 percent or more of their mort- gages don't qualify. The primary reason offered by banks with non-QM loans was "unaffordable debt-to-income ra- tio." Under the QM terms, a bor- rower's monthly debt payments cannot exceed 43 percent of their monthly gross income.