Stocks rebound, rates still ripe

After a few weeks of turmoil, U.S. stocks rose Friday on reports of stronger September housing data. The markets have been erratic in response to political conflicts abroad, the impending end of the Federal Reserve's quantitative easing stimulus program, and of course, fear of that "E-word" illness spreading even faster than the virus itself.

Although the housing market gains were not consistent in all areas, new home sales were the highest during the month of September since 2008, keeping housing data on an upward trajectory. Home value gains have finally slowed and interest rates have dropped, making new home purchases more affordable for many borrowers.

Meanwhile, mortgage backer Fannie Mae settled a lawsuit for $170 million for failing to disclose financial info to investors dating back to before the markets crashed in 2008. The missteps by Fannie Mae and Freddie Mac to effectively "manage risk" by taking on subprime credit loans, for example, are what led to much stricter mortgage regulations and standards.

Regulators agree to loosen the belt on mortgage lending rules

Following up on the theme of  loosening mortgage standards discussed in last week's blog, U.S. regulators agreed to relax rules for approving new mortgage loans to borrowers. One of the biggest changes includes dropping a minimum 20 percent downpayment requirement of a home's sale price. Regulators want to ensure loans are approved only to credit-worthy borrowers while also encouraging healthy growth in the homeowner's market.

Regulators finally easing up mortgage standards?

Graph via Businessweek.com

In response to ultra-tight lending standards of the past few years, Federal Reserve officials said this week they would consider loosening criteria needed to extend mortgage credit. The issue is slated for discussion at this week's upcoming Fed meeting, and approval is also expected from the U.S. Securities and Exchange Commission and other financial regulators.

Relaxing of lending rules would be welcome news to anyone who has struggled to get a green light for new mortgage loans or refinancing since the industry was upended after the 2008-09 crash.

Following the collapse of the mortgage-backed securities market at the start of the recession, largely due to loose criteria for handing out mortgages, regulators swung to the other side of the pendulum to allow only borrowers with very high credit scores and comfortable income and assets to get new loans.

In the meantime, interest rates dipped below 4 percent (on average) this week for the first time since June 2013, opening the door for a large chunk of borrowers to refinance to a lower rate or purchase new homes at a more affordable rate. Anything could happen after the next week's economic and political news, however, causing rates to ricochet upwards just as fast, so be sure to take advantage of this opportunity if you may benefit by calling a licensed loan advisor at 877-939-0339.

September jobs report strong, but doesn't tell full picture

Graph courtesy of Marketwatch.com/Labor Department
 

Unemployment drops but wages still stagnant

The September jobs report released Friday was greeted with a great deal of applause, boasting the lowest unemployment rate since 2008 at 5.9 percent. About 248,000 new jobs were also added to payrolls, a strong figure in comparison to the past year.

In response to the rosy report, stocks continued to rally, but after realization set in that not all data was glowing, the dollar's index dropped 1.1 percent Monday. Although the overall unemployment rate continues to drop, the percentage of Americans employed in the labor market has also dropped to 62.7 percent - the lowest rate since 1978.

While the data released in the jobs report was mostly positive - job gains were also marked for demographics including Latinos and African-Americans - a big concern remains stagnant wage growth.

Fed officials will want to see wage growth exceeding the roughly 2 percent inflation increase as a signal that the economy can withstand interest rate increases. All eyes and ears will be on the Fed in the coming months to determine when we can expect rates to move past this historic bottom-dwelling era.