Archive for the 'Fed' Category
November 4th, 2009, 3:50 pm by Mathew Padilla
The Federal Reserve today left a key short-term interest rate unchanged at near zero percent and said again it will wind down purchases of mortgage securities through March. Here’s how some market watchers reacted to the statement:
Jeff Atlman, partner with WestCal Mortgage Corp. in Tustin
“I think it was the right move on the Fed’s part. With inflation being benign and the economy at a crossroad where we are not sure if it can sustain a long-term recovery, they really have limited options. They will continue to purchase mortgage-backed securities and at some point the economy has to show a lifeline of its own. I personally have always said that Washington must realize that our economy will not turn around until jobs return and the housing market turns around. The brains in Washington D.C. are placing laws into effect that are actually hurting consumers (HVCC law, MDIA law etc.). Extending the homebuyer credit would be a positive, but they need to add an incentive to the people who are responsible homeowners and offer them a fixed tax credit as well, such as $6,000 or $6,500.”
Jack Kyser, founding economist of The Kyser Center for Economic Research, LAEDC
“This decision wasn’t unexpected. Our reading of the local economy is that it has hit bottom, but there isn’t much upward momentum yet. Small-to-medium sized businesses complain that they can’t get bank loans. They are also concerned about potential costs imposed by healthcare reform. So it is still tough out there, and keeping rates low is a good decision.”
Jeff Lazerson, a mortgage broker and founder of Mortgage Grader in Laguna Niguel
“We should consider ourselves lucky if inflation pressures force the Fed to raise rates by 4th quarter of 2010. Banksters are being scrooges when it comes to small business lending as well as commercial and residential property lending. We will be stuck in double digit unemployment for some time. The good news here is that Federal Reserve Chairman Ben Bernanke is learning the game of posturing. He didn’t say anything to upset the markets.”
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October 29th, 2009, 7:14 am by Mathew Padilla
The Federal Reserve today is buying the last of the $300 billion in government bonds it pledged to purchase to maintain low interest rates and stimulate housing and the economy.
But will mortgage rates go up as a result? Maybe not on loans that can be sold to Fannie Mae and Freddie Mac, because the Fed will continue buying mortgage securities issued by those government controlled companies until the end of March.
What’s your vote? (Note: There are 100 basis points in one percent.)
Will mortgage rates rise now that Fed is ending Treasury purchases?
Posted in: Fed • Mortgage rates • Polls | 4 Comments »
October 1st, 2009, 7:37 am by Mathew Padilla
Fed Chairman Ben Bernanke told a congressional panel this morning that a council of U.S. regulators, rather than the Federal Reserve alone, should be charged with monitoring threats to the nation’s financial system.
“All federal financial supervisors and regulators — not just the Federal Reserve — should be directed and empowered to take account of risks to the broader financial system as part of their normal oversight responsibilities,” Bernanke said.
The Wall Street Journal has more:
Mr. Bernanke’s view that systemic risk-monitoring should be a group effort could address some fears that the Obama administration’s sweeping plan to rework the nation’s finance rules would give the Fed too much power.
The Obama administration and the Fed have called on Congress to rework financial regulations to better prevent future crises. While the administration wants Congress to approve a bill this year, key proposals that would boost the Fed’s power to regulate the financial system for threats to financial stability have come under fire.
Some market watchers say the Fed should focus more on monetary policy and leave banking regulation to other agencies.
Yet when the Fed cut interest rates after 9/11 the credit bubble expanded, including some very reckless lending. Under Alan Greenspan, the Fed did not act to stop destructive credit behavior even though its loose-money policies were fueling that behavior.
Perhaps the Fed and the regulators should meet in a council format to discuss systemic risks and the impact monetary policy is having on banks and nonbank financial companies.
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September 23rd, 2009, 11:35 am by Mathew Padilla
Federal Reserve officials said today they will keep buying mortgage securities and debt of mortgage giants Fannie Mae and Freddie Mac until the end of March 2010 to “gradually slow the pace of these purchases in order to promote a smooth transition in markets.”
Such purchases are widely seen as putting downward pressure on mortgage rates. Some economists previously speculated rates would jump 35 to 50 basis points if the Fed stopped buying mortgage securities abruptly in December, according to its prior plan.
The U.S. central bank plans to purchase as much as $1.25 trillion of mortgage securities backed by Fannie and Freddie, and as much as $200 billion of their debt for company operations.
And the Fed reaffirmed its purchases of $300 billion in Treasuries will finish by October 2009.
The Fed also kept its target for the federal funds rate unchanged at 0 to 1/4 percent.
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Posted in: Fed • Mortgage rates | 4 Comments »
September 16th, 2009, 1:00 am by Mathew Padilla
The latest from National Mortgage News:
If the Federal Reserve Board suddenly stops purchasing agency mortgage-backed securities on Jan. 1, mortgage rates could jump by 30 basis points to 50 bps, according to Fannie Mae chief economist Doug Duncan. Conventional mortgages with principal balance up to $417,000 would likely rise by 30 bp and rates on higher balance loans of $650,000 to $729,750 could go up by 50 bps, he told MortgageWire. The Fed’s $1.25 trillion MBS purchase program is slated to expire Dec. 31. But Mr. Duncan expects the Fed will extend and slowly wind down its purchases of Fannie, Freddie Mac and Ginnie Mae MBS. “Thus, incremental winding down of the Fed’s program may not be too disruptive of rates and spreads,” Mr. Duncan said in his August economic forecast. The Fed is expected to decide how it will wind down the MBS purchase program at the Sept. 22-23 Federal Open Market Committee meeting.
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Posted in: Bailout Buzz • Fed • Mortgage rates • Mortgage securities | 11 Comments »
September 14th, 2009, 7:22 am by Mathew Padilla
Bloomberg recently quoted Joseph Stiglitz, a Nobel Prize-winning economist, as saying the U.S. has failed to fix the underlying problems of its banking system.
“In the U.S. and many other countries, the too-big-to-fail banks have become even bigger,” Stiglitz said in an interview in Paris. “The problems are worse than they were in 2007 before the crisis.”
Here’s more from Bloomberg:
Stiglitz’s views echo those of former Federal Reserve Chairman Paul Volcker, who has advised President Barack Obama’s administration to curtail the size of banks, and Bank of Israel Governor Stanley Fischer, who suggested last month that governments may want to discourage financial institutions from growing “excessively.”
A year after the demise of Lehman forced the Treasury Department to spend billions to shore up the financial system, Bank of America Corp.’s assets have grown and Citigroup Inc. remains intact. In the U.K., Lloyds Banking Group Plc, 43 percent owned by the government, has taken over the activities of HBOS Plc, and in France BNP Paribas SA now owns the Belgian and Luxembourg banking assets of insurer Fortis.
While Obama wants to name some banks as “systemically important” and subject them to stricter oversight, his plan wouldn’t force them to shrink or simplify their structure.
…
“It’s an outrage,” especially “in the U.S. where we poured so much money into the banks,” Stiglitz said. “The administration seems very reluctant to do what is necessary. Yes they’ll do something, the question is: Will they do as much as required?”
…
Stiglitz, former chief economist at the World Bank and member of the White House Council of Economic Advisers, said the world economy is “far from being out of the woods” even if it has pulled back from the precipice it teetered on after the collapse of Lehman.
“We’re going into an extended period of weak economy, of economic malaise,” Stiglitz said. The U.S. will “grow but not enough to offset the increase in the population,” he said, adding that “if workers do not have income, it’s very hard to see how the U.S. will generate the demand that the world economy needs.”
The Federal Reserve faces a “quandary” in ending its monetary stimulus programs because doing so may drive up the cost of borrowing for the U.S. government, he said.
“The question then is who is going to finance the U.S. government,” Stiglitz said.
Today President Barack Obama is giving a speech meant to revive financial regulatory reform.
On Sept. 10, Federal Reserve Vice Chairman Donald Kohn gave a speech in which he said government officials have mostly kept to the advice of 19th Century journalist and intellectual Walter Bagehot, who said a central bank should act during a financial panic by lending to sound banks, against good collateral and charging interest higher than market rates to discourage long-term borrowing from the government. Kohn said (bold added):
The liquidity measures we took during the financial crisis, although unprecedented in their details, were generally consistent with Bagehot’s principles and aimed at short-circuiting these feedback loops. The Federal Reserve lends only against collateral that meets specific quality requirements, and it applies haircuts where appropriate. Beyond the collateral, in many cases we also have recourse to the borrowing institution for repayment. In the case of the TALF, we are backstopped by the Treasury. In addition, the terms and conditions of most of our facilities are designed to be unattractive under normal market conditions, thus preserving borrowers’ incentives to obtain funds in the market when markets are operating normally. Apart from a very small number of exceptions involving systemically important institutions, such features have limited the extent to which the Federal Reserve has taken on credit risk, and the overall credit risk involved in our lending during the crisis has been small.
Did he just admit the government has kept Zombie banks alive because they are too big to fail?
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Posted in: Bailout Buzz • Bank failures • Fed • Regulation | 7 Comments »
September 1st, 2009, 12:10 pm by Mathew Padilla
At least one Wall Street expert wants the Federal Reserve to buy fewer mortgage-backed securities now and extend the program into next year. The Fed’s buying of MBS likely is helping to keep mortgage rates low, as is its purchases of Treasuries.
Here’s more from National Mortgage News:
Credit Suisse mortgage strategist Mahesh Swaminathan said the Federal Reserve Bank of New York is purchasing Fannie Mae, Freddie Mac and Ginnie Mae MBS at a rate of $25 billion a week. “They are really racing,” said Mr. Swaminathan. “At this pace they will be done with their purchase program by yearend. I don’t think that is desirable,” he added. Recent statements by a couple of Federal Reserve Bank presidents indicate the $1.25 trillion MBS purchase program may be allowed to expire at the end of December. The New York Fed has already purchased $790 billion of agency MBS. If they cut their weekly purchases by 50% or more, the Credit Suisse strategist said, the purchase program could be extended into the first and second quarters of 2010. “It is much better to slow things down now and telegraph that they are ready to support the market for some more time,” he said.
The Fed has previously said it will wind down Treasury purchases and finish by October.
Obviously, this all depends on the strength of credit markets, the economy and housing.
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August 27th, 2009, 9:45 am by Mathew Padilla
The Federal Reserve is appealing a judge’s ruling that it disclose the names of banks that got emergency loans, and yesterday it asked the judge to allow it to withhold names during the appeal process. The Fed argued identifying the financial institutions would hurt them and make an appeal moot. Here’s more from Bloomberg:
The Fed’s board of governors asked Manhattan Chief U.S. District Judge Loretta Preska to delay enforcement of her Aug. 24 decision that the identities of borrowers in 11 lending programs must be made public by Aug. 31. The central bank wants Preska to stay her order until the U.S. Court of Appeals in New York can hear the case.
“The immediate release of these documents will destroy the board’s claims of exemption and right of appellate review,” the motion said. “The institutions whose names and information would be disclosed will also suffer irreparable harm.”
The Fed’s “ability to effectively manage the current, and any future, financial crisis” would be impaired, according to the motion. It said “significant harms” could befall the U.S. economy as well.
The central bank didn’t say when it would file its appeal.
Fed lawyer Kit Wheatley told Preska in a conference call today that she did not know how long it would take for the Fed board to search the New York Fed for records.
“We really don’t know what’s in New York,” Wheatley said. “We don’t control the system of record-keeping in New York.”
This is an interesting case. I’d like to see the names disclosed — we are talking about taxpayer money.
But the Fed’s fears are legitimate ones. The FDIC is already struggling with the number of banks going bad, and the financial system is still fragile. In fact, it can’t function without government support.
By the way, it was Bloomberg’s parent company that sued the Fed on Nov. 7 under the Freedom of Information Act on behalf of Bloomberg’s news unit.
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Posted in: Bad debt • Bailout Buzz • Bank failures • Fed | 11 Comments »
August 25th, 2009, 12:01 pm by Mathew Padilla
(Update II: Consumer advocate Kevin Stein added.)
I asked housing watchers what three wishes they have for Ben Bernanke’s second term as head of the Federal Reserve, assuming he’s approved by the Senate.
Jack Kyser, founding economist of The Kyser Center for Economic Research in Los Angeles
“1.That no more major financial institutions get in to trouble.
2.That he can successfully pull liquidity out of the markets as the economy recovers, to keep inflation under control.
3. That he can help craft thoughtful regulation of the nation’s financial system.
And I am very happy that he got re-appointed.”
Michael Pento, chief economist of Huntington Beach-based Delta Global Advisors
“1. He keeps money supply growth in check. Meaning it never grows faster than labor force + productivity growth
2. He makes sure financial institutions don’t become over-leveraged again
3. He lobbies the White House in an attempt to stop the national debt from increasing.
None of these wishes have a chance of coming to fruition.”
Jeff Altman, partner with loan brokerage WestCal Mortgage Corp. in Orange
“1. That he would listen to the National Association of Mortgage Brokers and have an open line of communication with them.
2. The Federal reserve keeps a BIG EYE on inflation in the next 12-18 months.
3. He speaks up and is not afraid to tell the Obama administration that ENOUGH IS ENOUGH regarding spending and that to continue spending foolishly will put us in a double-dip recession.”
Walter Hahn, real estate economist in Irvine
“1. Keep doing what he has been doing, which is nursing the fragile financial system along so it doesn’t collapse.
2. More of 1.
3. At the right time start soaking up the trillions of cash the Fed has pumped into the financial system so that the cash doesn’t set off a surge in inflation.”
Kevin Stein, associate director of consumer group California Reinvestment Coalition in San Francisco
“1. Strengthen anti-predatory mortgage lending regulations which could have prevented the current crisis and which could prevent a future one. This would include deeming as unfair and deceptive the following practices and products: prepayment penalties, yield spread premiums, and negotiating mortgages in non English languages without providing translated documents to the borrower.
2. Expand reporting requirements under Regs B and C so that loss mitigation/loan modification outcomes are reported under Reg C (in essence, to expand HMDA data reporting), and so that race and ethnicity data of borrowers is collected under Reg C for loan modifications and under Reg B for small business loans. This will help shed light on how well financial institutions are doing helping families and neighborhoods of color to avoid foreclosure and to develop economically.
3. Publicly support federal legislative proposals to prevent foreclosures, protect consumers and promote reinvestment, through: Bankruptcy cramdown legislation; the development of the President’s proposed Consumer Financial Protection Agency (HR3126); and the proposal for Modernizing the Community Reinvestment Act (HR1479).”
What are your wishes for Bernanke?
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August 25th, 2009, 8:19 am by Mathew Padilla
The news today that President Barack Obama is reappointing Fed Chief Ben Bernanke likely means the Fed will continue to pump money into the economy through 2010.
The Fed previously said it would stop buying Treasuries by the end of October, and it is scheduled to stop buying mortgage securities in December. But it extended TALF (support of auto and student loans, credit cards, business equipment and loans guaranteed by the Small Business Administration) through March and extended support of commercial mortgage backed securities to June.
Those are all extraordinary programs meant to tackle the credit meltdown. As for the more traditional tinkering with the federal funds rate that banks lend each other overnight, St Louis Fed President James Bullard said in a recent interview that financial markets have not fully understood that the central bank’s pledge to keep interest rates exceptionally low for an extended period means they will stay low beyond when officials normally would raise them.
“I don’t think markets have really digested what that means,” Bullard is quoted by Reuters. Bullard will be a voting member of the Fed’s interest rate setting panel next year.
Bernanke’s reappointment must be approved by the Senate.
More Fed watch...
Posted in: Bailout Buzz • Fed | 7 Comments »
August 22nd, 2009, 12:00 pm by Mathew Padilla
The latest from National Mortgage News:
The Federal Reserve accepted $2.3 billion in investor requests for financing to purchase legacy commercial mortgage-backed securities at the second TALF subscription, up from $669 million at the first subscription in July. The Fed’s Term Asset-Backed Securities Loan Facility also provides financing for newly issued CMBS but there were no takers at the Thursday (Aug. 24) subscription. It is understood that several real estate investment trusts are gearing up to sell CMBS and may participate in the September TALF subscription. At the urging of commercial real estate interests, the Federal Reserve Board recently extended the CMBS TALF program until March 31 for legacy bonds and June 30 for newly issued bonds. The TALF program was due to expire at yearend.
TALF lives.
Some economists expect 2010 to be the year of modest recovery. But the Feds have to extract themselves from supporting most lending in this country and raise interest rates. Should be another interesting year.
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Posted in: Bailout Buzz • Commercial lending • Fed • Meltdown • distress | 11 Comments »
August 17th, 2009, 7:33 am by Mathew Padilla
The Federal Reserve has extended the TALF program, which is intended to spur lending to consumers and small businesses at lower rates. But the Fed will not expand the types of loans made, reports the Associated Press reports. Here’s more:
The Fed on Monday said it extended its Term Asset-Backed Securities Loan Facility through March 31 for most of the types of loans it makes. The program was scheduled to end on Dec. 31.
The TALF started in March and figures prominently in efforts by the Fed and the Obama administration to ease credit, stabilize the financial system and help end the recession. Under the program, investors use the funds to buy securities backed by auto and student loans, credit cards, business equipment and loans guaranteed by the Small Business Administration.
The program for commercial mortgage-backed securities was extended through June 30 because issuing new securities in that area “can take a significant amount of time to arrange,” according to a joint news release from the Fed and the Treasury Department.
The broader TALF program had gotten off to a lethargic start, hobbled by rule changes, investor worries about financial privacy and fears that participants might become ensnared in an anti-bailout backlash from the public and Congress.
The program has the potential to generate up to $1 trillion in lending for households and businesses, according to the government. Spurring such lending is vital to turning around the economy.
The Fed and Treasury on Monday said they were prepared to reconsider this decision if financial or economic developments conditions indicate that such an expansion would still be warranted. However, the government believes the financial system is beginning to stabilize after being hit last fall by the worst financial crisis since the Great Depression.
“Conditions in financial markets have improved considerably in recent months,” the Fed and Treasury said in their statement. “Nonetheless, the markets for asset-backed securities backed by consumer and business loans and for commercial mortgage-backed securities are still impaired and seem likely to remain so for some time.”
The economic free fall appears over, but it will be difficult for the government to extract itself from lending support programs. The TALF is but one — the much bigger fish is housing, and what to do with Fannie, Freddie and FHA.
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August 12th, 2009, 10:01 am by Mathew Padilla
The Federal Reserve said today it will gradually slow purchases of Treasury bonds, and expects to have bought $300 billion in such bonds by the end of October.
 As I have said before, the yield on 10-year Treasuries, which is a rough guide to 30-year fixed mortgage rates, could rise once the Fed stops buying.
The Fed is also buying up to $1.25 trillion in mortgage-backed securities and $200 billion of debt issued by Fannie Mae and Freddie Mac. Those programs are set to finish at the end of this year. The Fed didn’t say if it will expand or extend them. If they do end, there will be more pressure on mortgage rates next year.
And to no one’s surprise the Fed kept a key interest rate at near 0.0%
Posted in: Fed • Mortgage rates | 1 Comment »
August 10th, 2009, 12:23 pm by Mathew Padilla
Just a quick blog post to note the Federal Reserve board meets tomorrow, and it will be interesting to see what it says, if anything, about buying government bonds.
As of now the program to buy up to $300 billion in Treasuries is scheduled to end in September. Bloomberg last week quoted two former central bank governors saying the program would not be renewed, given improvements in financial markets. We’ll see.
The yield on 10-year Treasuries, which is a rough guide to where 30-year fixed mortgage rates are headed, has been rising since the end of July, although it was down a bit today to around 3.8% as I wrote this. Here’s a chart of the yield from Yahoo Finance:
 10-year yield The Fed also is buying up to $1.25 trillion of mortgage-backed securities and $200 billion of federal agency debt, and those programs are set to expire at the end of the year.
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Posted in: Fed • Mortgage rates | 4 Comments »
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