Realty Check

Fed Speak And Your Mortgage: Some Expert Talk


Since we’re all "Fed, Fed, Fed," it behooves me to weigh in on how a Fed rate cut would affect mortgage interest rates, not to mention the current mortgage despair spiral, as lenders run for cover and investors turn up their collective noses. From everything I hear, it’s not going to do much in the short term, but rather than hear it from me, I thought I’d pose the question to some of my fave experts and let you hear from them:

Bill Seidman

Bill Seidman/Fmr. Head of FDIC, CNBC Chief Commentator: "If credit is bad, rates don’t count. I don’t care if you lower the rate 100 basis points. It may improve some of the profits of those institutions that lost a lot of money due to bad credit, but it does not address itself to the real problem, which is bad lending. And let me emphasize: it’s not just subprime, it’s substandard lending."

Jay Brinkmann

Jay Brinkmann/Mortgage Bankers Assoc.: "The Fed rate cut has already been priced in. Usually a Fed rate cut has little to do with consumer mortgage rates except to the extent that it signals an outlook on inflation. Greenspan's famous conundrum was that he kept raising short term rates and long-term rates did not move."

Howard Glaser/Fmr. HUD Official, Mortgage Industry Consultant: "My view is that the effect is likely to be limited – probably a short -term psychological boost more than a fix for mortgage market liquidity. The underlying problems that have made investors skittish about buying mortgage-backed securities are not addressed by a rate cut. In particular, concern about accurate assessment of risk of MBS pools remains a hurdle. The rate cut may help in the jumbo market, where illiquidity was do more to investor psychology than actual performance problems. So capital may come back there and help stabilize that market, where pricing has been terrible."

More Glaser: "And the Alt A/Subprime markets will not be affected at all by a rate cut. Subprime will drop from 700 billion in the first half of the year to 300 billion in the second half of the year (FBR) and nothing will stop that. The loan types that made that volume possible simply can’t be made today (due to regulatory changes)---you could lower the rate to zero and those loans are still not coming back."

Questions?  Comments?