I’m pleased to announce that the news relating to mortgages and economics has gotten a lot more inÂteresting for everyone this week. Lots of reasons to feel positive about where rates may be headed.
At least in the short-term.
First off, Fed Chairman Ben Bernanke announced earlier this week that the Fed governors were conÂsidering extending the time that investment banks would have access to the Term Securities Lending Facility. This means, amongst other things, that these ailing institutions can post their questionably valued mortgage-backed securities as collateral in exchange for loans from America’s central bank. This news prompted a renewed interest from the investment community in mortgage-backed securities and sent mortgage rates roaring down.
Good news from this move: it helps to break up the log-jam in the mortgage financing industry. From a completely selfish perspective, this is a huge plus. It’ll bring more investment, help real estate prices to reach a solid market bottom and lower the interest rates that consumers pay. Yaaaaaay!
Bad news from this move: the doors are remaining open for the Fed to take on a ton of bad investÂments that have the distinct potential of getting worse. They can only do this for so long before these actions would bring forth higher taxes (because the central bank has gotta get money from somewhere) and would usher in a new era of political intervention and regulation to our financial markets that could strangle America’s international competitiveness right out of the system in the name of stability. Translation for the consumer: qualifying for a loan would get even harder than it is right now. Boooo!
This process is already starting to play out. Fannie Mae and Freddie Mac, two giants in secondary market mortgage financing, saw their stocks nosedive after former Fed President William Poole stated “(Fannie and Freddie) may need to be bailed out from the rising pressure of the greatest housing slump since the Great Depression.” This came on the same day that Treasury Secretary Hank Paulson and Ben Bernanke were testifying to House Financial Services Committee, pushing hard for a regulatory overhaul to “reduce the circumstances that require government intervention”.
Soooooooo…we’re going to bring in a ton more regulators and intervene…less?
This is one of those good-in-theory types of things that will probably help in the short-term and hurt in the long-term. I’m not suggesting that the system doesn’t need to change or that we should let Fannie and Freddie fail. I’m just suggesting that the We will bail you out as a “last resort” message that the Fed has sent out could prove to be detrimental to the economy if more institutions take advantage of it.
Israel and Iran continue to politically poke each other in the chest. Now Iran has tested some mid- to long-range missiles capable of reaching Israel. Aside from the whole potential threat of mass genocide international incident thing, this rising tension has caused oil to rebound higher, bringing inflation concerns back to center stage.
On the lighter side of politics, the Reverend Jesse Jackson was caught on microphone saying in referÂence to presidential hopeful Barack Obama that he “wants to cut his nuts out”. There are only so many things in this world that make me physically hurt from laughing. This is one of those things. Classy.