Mary Kladde
“Fed launches bold $1.2T effort to revive economy” (JEANNINE AVERSA, AP Economics Writer Jeannine Aversa, Ap Economics Writer)
“WASHINGTON – With the country sinking deeper into recession, the Federal Reserve launched a bold $1.2 trillion effort Wednesday to lower rates on mortgages and other consumer debt, spur spending and revive the economy.
To do so, the Fed will spend up to $300 billion to buy long-term government bonds and an additional $750 billion in mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac.”
This move by the Fed will do nothing for the Primary Mortgage Lending Market if liquidity does not loosen and become available for lenders other than the large financial institutions such as Bank of America, CitiMortgage, and Wells Fargo.
Consumer refinance demand will continue to peak since consumers do not understand the difference between the Fed lending rate to financial institutions and long term interest set by the primary mortgage investors. Rates, however, will not significantly dip as intended until liquidity is infused back into the primary market.
There is not enough money in the system to allow independent mortgage bankers/correspondent lenders to service consumer demand in their communities. They actually have to pick and choose which loans to fund at the end of the month right now. Liquidity issues have even moved some of the remaining Warehouse Lines providers to suspending refinance transaction fundings in favor of purchase money business at the end of the month. Warehouse Line Lenders do not have the money to fund the demand and they are making their customers choose which loans to fund and which loans to push into the next month. This “push”, of course, often times represents loss to the correspondent lender aka “small business owner” and community employer. Loss equals reluctance to hire and make capital expenditures which is ultimately the whole idea behind the Fed’s push right?
The “Bigs”, on the other hand, have already made it clear that there is no need to decrease long term rates since it is a matter of “supply and demand” and they can take this opportunity to shore up their margins. Demand is up, supply is down…due to the fact that independent bankers/correspondent lenders cannot get the needed cashflow to compete….so there is really no need to lower rates for the end consumer until the playing field has been leveled again.
There’s been quite a bit of lip service given with regards to supporting small business over the last couple of weeks. Independent mortgage bankers/correspondent lenders are representative of the small businesses in question. ACTIONS SPEAK LOUDER THAN WORDS. Somebody somewhere in a position of authority and influence needs to get a clue quickly before it’s too late. Let’s remove/suspend some of the capital requirements for Community Banks and Credit Unions on Warehouse Line Lending and get the ball rolling!
