Fed Announcement Tuesday - Rate Cut Does Not Rescue Housing Market
Forclosure Properties
The Fed will be making an announcement tomorrow and the media as well as everyone else who doesn’t know what they are talking about, are hoping that they will announce a rate cut of some sort. While this will bring increased liquidity into the financial markets, it doesn’t mean the housing market will improve or be saved…or that Jane and John Doe who are losing their house will have a solution to help them. The issue today is that lenders have stopped making high leverage loans (loans with Loan to Value ratios above 80% as an example) to just about everyone. The people that need these loans the most, are the people that 1) have something like this in place and can’t afford it and probably never could and 2) are the ones losing their houses. A FFR cut is not going to help these people as it will have NO effect on lender’s lending policies and standards. As Lonnie said this morning in his email:
Everyone is waiting for the Fed announcement tomorrow and is hoping a Fed rate cut will rescue the housing and mortgage markets. As I stated once before, a rate cut may create liquidity in the financial markets, however, investors still need to believe mortgage lenders are making quality loans.
People need to understand that increased liquidity at this point merely helps people who have credit and the ability to support it, to borrow at cheaper rates. Lending guidelines are still extremely tight and that is not likely to change until the fat is trimmed from the housing market.
tags: bernanke, bubble, fed, fomc, foreclosure, housing market, interest rates
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