Mortgage Rate News

One of the big news stories that is somewhat quiet is the fact that the Federal Reserve is offering special rates to banks — including mortgage lenders — for borrowing money. The Fed Funds rate (the rate at which banks borrow from each other) is already rather low, but it hasn’t done much in terms of increasing the liquidity of the money market. So many banks are turning to the Term Auction Facility (TAF).

The TAF allows for a wide range of assets from mortgage lenders and other banks to be accepted as collateral. And there are also rules in place to “protect” the privacy of banks putting up this collateral for loans from the Federal Reserve. But it may not be the best option for the economy at large. The Financial Times reports on borrowing from the Term Auction Facility:

“The TAF … allows the banks to borrow money against all sort of dodgy collateral,” says Christopher Wood, analyst at CLSA. “The banks are increasingly giving the Fed the garbage collateral nobody else wants to take … [this] suggests a perilous condition for America’s banking system.”

Many feel that this is a bad idea, since this is nothing more than moving money around — money that may not actually be there. It is another instance of trying to inject “confidence” into the US economy, rather than actually reforming the practices that led us to this point in the first place.

Another looking problem is stagflation. Stagflation is a term that describes a state of affairs when inflation is in effect, but the economy remains stagnant. Many economists feel that stagflation is a harbinger of recession. The International Herald Tribune reports on the precarious position the Federal Reserve has in trying to control economic outcomes:

The problem is that the Fed is trying to revive the struggling the US. economy by aggressively cutting interest rates. Rate cuts are meant to encourage American consumers and businesses to borrow and spend, which can create enough demand for goods and services to raise prices. If the Fed maintains low rates when prices are rising, the central bank risks setting off a period of even higher inflation.

Tags: mortgage lenders, mortgage loan blog, home mortgage loan, Federal Reserve,
Term Auction Facility, US economy, stagflation