Wall Street Mirrors Sentiments of Main Street

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Eleonora  writes: Homeowners face uncertainty moving forward! Major developments are taking place in the banking sector across the United States. The mortgage boom is now a thing of the past. More and more banks across the United States are closing their facilities and financial units that traditionally worked with customers to refinance their home loans. In fact, one of the major lenders – JP Morgan – laid-off an estimated 2,000 workers during the month of August. 50% of the workers were in the home loans departments.

According to industry sources, JP Morgan is set to slash some 17,000 jobs by 2014 – the majority of which are in the departments which handle bad home loans. The layoffs, which have taken place recently reflect a new trend which is fast gaining momentum across the United States. The layoffs are not limited to home refinancing units. And much the same is taking place in Wall Street banks too. Some of the bigger banks that have announced plans for layoffs include Citigroup with 120 jobs, Wells Fargo with more than 3000 jobs, and Bank of America with more than 2,100 jobs.

Mortgage Applications Plummet as Refinancing Rates Increase

As the mortgage rates increased during 2013, so applications for home loans across the US dropped precipitously. In fact, analysts indicate that this is the lowest level of US home refinancing applications in four years. A drop of 13.5 percent as of September 6, 2013 was recorded in applications for home purchase loans and home refinancing loans. The impact of the rising interest rates has put the brakes on applications at major lending institutions around the country. The index is now at its lowest point since November 2008 – the period which marked the beginning of the financial crisis. This comes hot on the heels of information which was released prior to the US Federal reserve considering a bond repurchase program of mortgage backed securities. Support from the Fed has been a catalyst to boost the prices of homes across the country. The slump between 2008 and 2012 in home values seems to have turned the corner, but the downside is that applications are slowing as prices rise. In fact, the cost of borrowing money has spiked dramatically since May 2013.

30 year mortgage rates increased some seven points to 4.8%, while the refinancing index dropped 20.2%. The message to be taken from all of this is that the increasing interest rates are starting to be felt by new entrants to the homeowner markets as well as existing homeowners who are looking to refinance their mortgages. One of the leading industry mortgage lenders – Wells Fargo & Co is expecting a drop in the region of 30% for home loans during this present financial quarter. Meetings are slated to be held between the 17th and 18th of September by Federal Reserve Bank policymakers regarding whether to intervene with the bank's assistance in the economy. Caution appears to be the order of the day across-the-board. Third-quarter earnings are a mere four weeks away and projections for Wells Fargo & Co originations are in the region of $80 billion for the 3rd quarter. This is down $32 billion from the last quarter. Banks and their analysts are uncertain of the full impact that rising interest rates will have on the profitability of big banking institutions.

Fannie Mae and Freddie Mac under Government Conservatorship

5 years ago, Fannie Mae and Freddie Mac were taken over by the federal government. The result of scores of defaulted mortgages sent the companies into a tailspin. Today, things are very different. Profit levels are in the billions of dollars – and the US Treasury is collecting handsomely. The profitability of the companies is directly related to government assistance and this is a bone of contention for lawmakers and their constituents. As the government's involvement in Fannie Mae and Freddie Mac continued, so they purchased stock options to keep them afloat. By 2012, the housing market comeback from its low point of 2008 and at that stage, the companies began raking in big profits. Individual investors are seeking their share of profits from the government, and demanding that government conservatorship ends. Naturally investors are looking to one another as they decide whether to pour funds into the mortgage market. Fears of another crash are omnipresent, especially given the tepid response of key market players to the slow recovery.

Millions of Americans Facing Debt Crisis

In spite of the increasing home prices across the country, some 3 million Americans are facing uncertainty regarding loans that they have signed. This has resulted in a negative home equity rate and it is the fifth quarter that such an occurrence has taken place. It is estimated that over 12 million homeowners with a mortgage owe other banks and lenders more than their homes are currently valued at. While this figure is down from 2012, it is still exceptionally high. The problem arises where homeowners are severely indebted to their mortgage lenders, and modest increases in home prices have not offset the tremendous debt that they owe. The overall figure is estimated at 20% – that is how much the typical American with a mortgage is in debt. Stock markets around the world reflect the uncertainty that permeates households across America. Naturally diversified portfolios are being punted as means of bolstering one’s nest egg in the face of such economic turbulence. Stocks, indices, commodities, binary options, and forex are increasingly being looked towards as alternatives to traditional investments. One thing looks certain for the short to medium term, home prices will continue to move in a positive direction. This bodes well for laying a solid foundation for middle-class families around the country, thus freeing up disposable income for the aforementioned alternative investments.

About the author:Eleonora Marchettiis an expert on financial markets specializing in foreign exchange and trading in binary options. An honorary graduate of the SDA Bocconi School of Management in Italy, she provides consultation services to various economic powerhouses, including the globally renowned binary options trading firm, Banc De Binary.

© 2013 Copyright Eleonora Marchettiis - All Rights Reserved

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