A mix of over-regulation and Federal Reserve missteps could imperil the housing industry and the financial services companies that depend on it, according to a report.
As U.S. central bankers convene in Jackson Hole, Wyoming, to hear Fed Chair Janet Yellen's updated description of the American economy, the Kroll Bond Rating Agency said that today's market is very different from the one in which the Fed committed to zero-percent interest rates. The market has shifted substantially, but regulations and policymakers aren't keeping the pace.
"Policymakers are not watching spreads," said KBRA senior managing director Christopher Whalen. "There is a liquidity problem — this is a near-term concern."
Regulation is up, rates are down and widening credit spreads suggest a lack of demand in the market on which mortgage lenders depend. Even as home sales surge to nearly a nine-year high, Whalen said a combination of unnatural monetary policy and restrictive regulations could critically wound the mortgage market, at a time when central bankers are left with few levers to pull in order to sidestep a crisis.