Last week, 2 major banks, JP Morgan and Wells Fargo reported record earnings citing their mortgage business as the main drivers for their success. Foreclosure activity fell in September to its lowest level since the beginning of the credit crisis. Housing starts are up significantly in 2012 from all similar periods a year ago. Sales as well as median home prices have risen and are continuing to rise. Many have looked at these signs and others as sustained evidence of a comeback in the housing market. At the same time, the Federal Reserve started up its program to buy about $40 Billion of agency MBS per month over the next several months.
One month into QEIII, people rightly knew that the price of mortgage-backed securities would go up and adversely affect their yield. They wondered how the program would affect mortgage rates. Since bank margin levels for the product remain robust, it kept the rates from falling too far. While it is too soon to turn off the porch light and go to bed, all involved take it as a good sign as well as hope that the trend continues to energize the market.
Yet this is an executive search firm, and we are concerned about jobs! The US Bureau of labor statistics reported that mortgage firms are still hiring into the fall, and that nearly 3000 full time employees were added to the mortgage banking payrolls over the last quarter. Industry employment is up 7% since August of last year. The bulk of the jobs that are being filled are those directly involved in the refinance boom and that hiring is expected to continue.
This is the good news. The news we are waiting for is to see whether REITs will be negatively impacted by the Quantitative Easing. Some fear that REITs investing in the same bonds targeted by the Fed would see their income drop, causing them to lower dividends, suffer withdrawals and lead to layoffs in the future. In turn it would prevent new REITs and other funds from developing and creating job demand. Mortgage REITs are having a fantastic year, and employ a fair number of the mortgage executives within the market that used to fill the jobs that were a part of the securitization group in the investment banking space. Right now, our contacts tell us it is too soon to tell.
Additionally, we still do not have a mechanism in place to transfer mortgage risk to the investor. We still do not have a (true) private label business for mortgages. And, we still do not even have a securitization business for MBS that is as great as it was in 2011. For the first 9 months of this year, overall securitization was down as compared to last year. Seven of the top ten shops that are competing in that space this year report lower volume figures amongst bookrunners during the same period. While we are optimistic about the future, if the current climate is to lead to full bore hiring and job creation in this sector, the refinance wave as well as the other fundamental levels will have to sustain their performance well into 2013.
Photo Credit: thenichereport.com