The Fed decision today to hold rates at 2 percent was expected. The Fed decision and the statement outlining the reasons show Bernanke’s lack of courage and leadership in my book.
The statement of the Fed said inflation worries in the future were “highly uncertain”.
Bernanke’s new mortgage rules are devoid of any real protection from bad mortgage originators since they conveniently skipped regulating yield spread premiums. The new rules apply to all mortgage lenders and therein lies the rub. If the Fed wanted to reign in mortgage broker yield spread premiums they’d also have to address bank service release premiums.
Today Ben Bernanke, the Federal Reserve Chairman, spoke addressing many issues the foreclosure and mortgage crisis are causing. Mr. Bernanke seems worried, at least ostensibly, the current or a possible future crisis could cause entire “financial markets” to grind to a halt.
The housing crash currently in it’s infancy will soon grow up into an economy killing monster that the Federal Reserve has no weapon strong enough to defeat. A housing crash is unlike a stock market crash in that there is no easy way out.
Let’s take a walk back in time to the tech stock crash just 8 years ago and compare it to a housing crash.
The Fed makes a rate cut and current mortgage interest rates rise. The current mortgage interest rate on 30 year fixed loan routinely inches up compared to rates before the cut.
Consumers are expecting the opposite to happen and yet it rarely does. This opposite market reaction is pretty consistently over the last few cuts.
The Fed rate cut this week came from and emergency meeting when the Dow futures were down almost 500 points. The rate cut came just in the nick of time stemming a stock market crash…or so we’re told.
Yes…at least that was how it was reported in the media… a crash as bad as Black Monday two decades ago…and we were 60 minutes away. Tick- Tock…
The subprime mortgage meltdown which started with US Bear Stearns two multi-billion dollar hedge funds going under is now spreading across the pond to Europe where French bank BNP Paribas froze three similar funds (total market value about $3.79 billion) invested in US subprime mortgages sending the Dow down 200 points according to the AP wire.
On July 19th, Fed Chairman Bernanke testified before the Senate Banking, Housing and Urban Affairs chaired by Senator Dodd. In the Q and A portion of his testimony, Senator Carper asks Mr. Bernanke about the modernization of the FHA mortgage program. FHA mortgage programs have lost ground to more “adaptive” mortgage programs in the last few years. So much so, they have nearly fallen into obscurity. I wrote an article about a month ago if you’d like a refresher on the FHA home mortgage demise.
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