Mortgage Payment Program

This past week the Federal Reserve announced the results of the financial “stress test” it conducted on the top financial institutions. Of the 19 reviewed, 9 came through with passing marks. I was personally pleased to see that our primary business banking partner J.P. Morgan Chase Bank came through with passing marks, but that was not very surprising. Jamie Diamond and group have outperformed their banking peers for several years in terms of both results and sound business decisions. It also confirms that we made a good decision in choosing them as a banking partner for our clients. Fed chief Bernake was quoted as saying “the results… should provide considerable comfort.” Even though more than half of the institutions tested need to raise capital, the quote makes sense in that the institutions are still viable and not at risk of being shut down. But I wonder if the average American who is banking with or has funds held by a small regional bank which was not put through the stress test is comfortable.

The Federal Reserve continued their long string of lowering rates and recently lowered rates again. The question I have been getting asked a lot lately is “Will this reduction lower mortgage rates and help with the mortgage crisis?” My answer to them is “Not so much.”

For those who watch mortgage rates closely have noticed that mortgage rates have actually risen slightly after of few of the recent Fed rate drops. Why? The rates that the Federal Reserve has been lowering are the rates at which banks borrow money. In a simple world, if the bank has access to cheaper funds that should mean that it trickles down to the consumers and drives down our cost to access funds in the form of loans. The mortgage market is much more complicated than that with access to funds, and the rates, driven mostly by Wall Street and their demand to buy and sell mortgage backed securities. This demand still remains low largely due to the still existing issues around declining home values and the still rising delinquency and foreclosure rates.

So, if the drop in rates by the Fed isn’t going to help the current mortgage and housing climate, what will? The best answer I can offer is time. At some point the inventory of houses will begin to shrink and home values will stabilize and the housing market will begin to recover. The silver lining? For those people who have equity in their homes – either from buying at a low point or paying down the principal balance faster – or cash to put down on a home there are a lot of bargains in the market to be had.