Federal Reserve Gets Creative with Loan Strategy
Tuesday, the Federal Reserve in it’s latest strategy for creating liquidity in the financial markets lead to a rally on Wall Street, with the Dow Jones Industrial Average gaining more than 416 points - its largest one-day point gain in almost six years.
Fed Accepts Mortgage-Backed Securities as Loan Collateral
The Fed announced that it will loan financial institutions up to $200-billion for up to 28 days, accepting lenders’ troubled mortgage-backed securities as collateral. In turn, banks will be able to lend money to others, and the credit markets can flow once again.
In a combined effort, the Bank of Canada, the European Central Bank and the Swiss National Bank will be making similar loans of up to $45-billion. The joint action will give some relief to banks left holding mortgage-backed securities that no one wants to buy.
The gap between what investors earn on Treasurys versus mortgage-backed securities (MBS) guaranteed by Fannie Mae and Freddie Mac has continued to widen. With the housing crisis and rise in loan defaults and foreclosures, mortgage-backed securities are a riskier investment than they were before the subprime meltdown. When fewer investors buy mortgage-backed securities, it ultimately means home buyers will pay higher mortgage interest rates.
According to Reuters, news of the Fed’s plan had an immediate and positive effect on the yield spread between MBS and Treasurys, reducing it by as much as 12 basis points.
Wall Street was enthusiastic about the plan since it shows the Fed is exploring options beyond cutting short-term interest rates. Antony Conroy, managing director and head trader for BNY ConvergEx Group, praised the move. “It’s not just a rate cut. It shows the Fed is willing to do things that are a little outside-of-the-box to shore up credit issues. I really think they went to the heart of the issue,” Conroy said.
Critics of the Fed’s plan think they fell short by not offering a longer loan term, up to three months instead of just 28 days. Will the Fed’s latest move be enough to keep mortgage interest rates from rising? Only time will tell. Meanwhile, the Fed’s Open Market Committee is scheduled to meet again next week, and many economists are predicting another rate cut of at least 50-basis points.
Check back for more industry news on mortgage loans, real estate and new homes.
If you're new here, you may want to subscribe to our RSS feed.
You may also Subscribe to New Homes Real Estate Listings For Sale by Email Thanks for visiting!
The Author: Sandra Tuell
Website: http://www.newhomes.com
About: As an accredited real estate enhancement professional, interior arranger and color specialist, Sandra Tuell's expertise is in helping clients transition to a new home — first by preparing their current homes for resale, and then by creating warm and inviting spaces in their new homes that are uniquely personal. With a passion about all that is pertinent to the design, comfort, livability, and ultimately the marketability of a home, Sandra is excited to share her insights with homeowners who wish to maximize the potential of their homes.
As a writer for New Homes Realty, Inc., her focus is to provide practical information and affordable tips that both inspire readers and instill the confidence to try something new. “Our personal spaces can have a profound effect on how we feel,” stresses Sandra. “Everyone deserves good design. Creating beautiful interiors has more to do with creativity than money. The whole point is to create a space that makes you feel good...that you feel like coming home to.”
For the past four years, Sandra has operated her own interior arrangement and home staging company, Roomscapes, servicing clients in Pinellas County, Florida. She received specialized training in interior arrangement, and earned certification in real estate enhancement through Realty Enhancements International. Previously, Sandra worked in the corporate world as a marketing professional, applying her creative energy in a variety of roles including advertising, promotions, special events planning and web content creation. Her current position as a writer for New Homes Realty allows her to bring together her love of design and her educational training as a journalist. “It's really the best of both worlds,” says Sandra.
This entry was posted by Sandra Tuell, on Thursday, March 13th, 2008 at 6:11 pm and is filed under Real Estate News. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
No Comments »
No comments yet.
RSS feed for comments on this post. TrackBack URI
Leave a comment
If you want to leave a feedback to this post or to some other user´s comment, simply fill out the form below.