As expected, the Federal Reserve lowered interest rates again today, which in a normal recession-fighting cycle is a simple story: "The Federal Reserve today lowered interest rates, hoping to spur new borrowing by businesses and consumers."
That's not the story this time around. While the Fed is cutting rates, banks in many cases are making it harder to borrow. They have no choice — they've made so many bad loans that they can't afford any more boneheaded moves. The Fed isn't trying to help consumers; it's trying to save the banks.
Lou Barnes, my favorite Fed-watcher: "... the financial system is still too busted to function properly, credit is extremely scarce and expensive, the system is terribly vulnerable to recession-cycle credit loss ahead. ... How can loans be scarce with the Fed hosing loans into banks? Because system capital is impaired. There isn’t enough capital to support current loans outstanding, let alone new ones."
Cutting rates may be the Fed's best option, but that doesn't mean it's working. There is a cost, too, to the rate-cutting: a weaker dollar, rising import prices (oil and gas), the threat of more inflation, the kick in the pants to savers.
If you don't think credit is getting tighter, ask someone with a home equity line of credit. I continue to hear from homeowners who have had their HELOCs frozen or reduced.
This today from a recent L.A. home buyer whose credit line was frozen two days ago: "We bought our house last February right in downtown Culver City, got a good price and went for one of the fixer-uppers on the street (due to the state of the house aesthetically we were able to get a good house on the low end of the spectrum of prices for houses in our neighborhood). We put 20% down too which you would think would have prevented any of this from happening in the first place. We were planning on having that HELOC liquid there in case we needed it with the renovation we are planning for our kitchen this year...which will of course only ADD equity to the house. According to their 'reduced' value of the house we still actually have over $80,000 in equity (calculated by taking their low-ball estimate and subtracting from that the outstanding principal on the mortgage). ... I tried talking to the bank over several conversations over the phone and basically they do not look at, nor care to hear about, the actual equity on the house."
Your thoughts? Comments? E-mail story tips to peter.viles@latimes.com.
Random thoughts, bloviation and links on this morning's "surprise" Fed rate cut. (Why the air quotes around "surprise"? Ask yourself: was it really a surprise?)
--What does it mean for mortgages? CNBC's Diana Olick was up early and all over this. Diana blogs, "I’ve said it before, and I’ll say it again: the 30-year fixed is not tied to short-term treasuries. ... Fixed mortgage rates are tied to long-term bond yields that move based on the outlook for the economy and inflation. And guess what? The long-term outlook for the economy isn’t exactly rosy right now. Today's rate cut does affect short-term adjustable rate mortgages, but not really as much as you might think. Why? Because this rate cut was already priced into the market..."
--What does it say about the economy? It says things are bad. Or, as a Deutsche Bank analyst told Reuters, "The Fed is very, very, very worried." The largest rate cut since 1984, by my logic, means the largest economic problem since 1984. You can forget the parallels to the early '90s real estate slump -- this is worse; the Fed just said so.
--What will the markets do? If I knew I'd be golfing, and if you listen to me you're a dope, but in a fit of caffeine-induced late-night speculation, I made my predictions last night over at the Blown Mortgage blog: Dow loses 485 points in early trading, closes with a loss of 312. I believe I'm out of the money on that one.
Your thoughts? Insights? E-mail story tips to peter.viles@latimes.com.
 The bad job and car numbers, and the dismal start of the year for stocks -- the Dow fell 4.2% this week -- have rekindled hopes for aggressive rate-cutting by the Fed. But as the reliable Lou Barnes explains, Fed Chairman Ben S. Bernanke (pictured) is stuck. Not only is he stuck, he can't even freely discuss why he is stuck.
To revive the housing market, Barnes reasons, Bernanke wants mortgage rates to move lower in the long term. But if the Fed moves too aggressively in slashing rates, the result is either inflation or inflationary fears in the bond market, which both have the same result: higher long-term interest rates.
Barnes: "The economy and especially housing need lower long-term rates; if the Fed appears to abandon discipline, long rates will rise no matter how far the Fed cuts. ... The appropriate Fed policy cannot be discussed in public. No Fed chair can tell the American people: 'We will be slow to ease on purpose, following the economy downhill, making no effort to preempt recession until inflation is clearly under control.' "
Your thoughts? Comments? Insights? E-mail story tips to peter.viles@latimes.com
Photo Credit: AP
You know the news: The Fed cut by a quarter-point, disappointing investors and Jim Cramer, who is moping that the Fed is "mediocre." For those who like to parse these things, here's what the Federal Reserve's Open Market Committee -- the interest rate guys -- have been saying about housing this year:
Jan. 31 statement: "... some tentative signs of stabilization have appeared in the housing market."
March 21 statement: "... the adjustment in the housing sector is ongoing."
May 9 statement: "... the adjustment in the housing sector is ongoing." (Aside: Does anyone know what that was supposed to mean? An adjustment is when you hitch up your pants, or start buying Lactaid instead of milk.)
June 28 statement: "Economic growth appears to have been moderate during the first half of this year, despite the ongoing adjustment in the housing sector."
August 7 statement: "... the housing correction is ongoing."
Sept. 18 statement: "... the tightening of credit conditions has the potential to intensify the housing correction and to restrain economic growth more generally."
Oct. 31 statement: "...the pace of economic expansion will likely slow in the near term, partly reflecting the intensification of the housing correction."
Dec. 11 statement: "... economic growth is slowing, reflecting the intensification of the housing correction."
Thoughts? Insights? Email story tips to peter.viles@latimes.com.
 We're updating our post on the Fed rate cut, as promised, with analysis:
In The New York Times, economic columnist David Leonhardt asks, "Will the Fed Reverse the Housing Slump?" He answers, "Don’t count on it." Leonhardt lays out the possibility that we are in for housing price declines on the order of 20%, and warns, "The scariest part of a national decline like this is that it could be more like 40 percent in some parts of the country." He specifically mentions southwest Florida as a place at risk of a big price decline.
Pimco's Bill Gross notes that, the last two times the Fed kicked off a rate-cutting campaign with a half-point cut, it was too late -- the economy was already on its way to a recession. He's not predicting a recession, he's just saying ... Gross sees another full point of rate cuts coming as the Fed tries to soften the housing downturn.
Old post below:
Good afternoon. You know the news, but here it is: "The Federal Reserve today slashed its key short-term interest rate a
half-point to 4.75% -- the first cut of any sort in four years -- and
added a half-point cut on a less-used rate, warning that tightening
credit conditions could worsen the housing downturn."
For the record, here's what the Fed said about housing: "... the tightening of credit conditions has the potential to intensify the
housing correction and to restrain economic growth more generally."
Well, you can't argue with that. Put plainly, the Fed says we are in a period of falling housing prices -- a "correction" -- and it could be getting worse.
Your comments? Will half a point make a difference to home sales or prices in the next couple of months?
Photo Credit: Reuters
 Good morning, again. We want your thoughts on the Fed's move yesterday and what it means for mortgages and housing. In that spirit, some starting points -- Fed analysis from near and far:
L.A. Times columnist Tom Petruno writes that the Fed bought some time to restore confidence in financial markets: "However else the decision was dressed up -- Fed supporters say policymakers intervened to protect the economy, while critics say the central bank is simply bailing out major financial companies -- this ultimately was about confidence."
The New York Times' Louis Uchitelle sees a more specific goal -- reviving the suddenly frozen market for jumbo mortgages and other "creditworthy" mortgages: "Fed policy makers and Treasury officials said that in cutting the discount rate, the Fed’s principal goal was to shore up the market for creditworthy mortgages, including those for more expensive homes."
Inman News columnist Lou Barnes doubts that will happen: "The Fed's action this morning has firewalled the mortgage panic from the rest of the banking system ... but will do nothing whatsoever to solve the underlying problems."
Bloomberg's Caroline Baum also returns to the mortgage market, arguing that it is "starting to strangle" much bigger debt markets: "The rate of default isn't extraordinary just yet, but the mortgage market is contracting in leaps and bounds, starting with originations and ending with securitizations. The tentacles of the home-loan market are starting to strangle portions of the debt, equity and even the normally staid money market."
The DealBook blog at NYTimes.com raises the possibility that the crisis at Countrywide Financial forced the Fed to act, and says the rate cut "could prove controversial: : "Some have argued that the Fed should allow the turbulence in the credit markets to play itself out, rather than offering a lifeline to fund managers and mortgage lenders who made risky bets."
Your thoughts? Analysis? Will it help housing? Other Fed commentary you think we should link?
Photo Credit: Reuters
 Good morning. Our weekly roundup of mortgage rates is a day late and will be short: Rates were unchanged this week, and today's bond market rally makes it quite possible they will be lower next week.
An interesting trend: The collapse of the subprime market may help keep interest rates from rising. Investors spooked by the subprime mess are flocking to the safety of government bonds, and in the process are driving down interest rates.
But first, the numbers: Inman News reports Freddie Mac's survey showed the 30-year fixed-rate mortgage holding at an average 6.73%.
Bankrate.com's separate survey showed average 30-year mortgage rates in L.A. at 6.9%, rising from 6.82% last week.
Freddie Mac Timeline:
6/14 6.74%
6/21 6.69%
6/28 6.67%
7/5 6.63%
7/12 6.73%
7/19 6.73%
Comments? Insights?
Mortgage rates reversed a recent decline and popped higher this week, Inman News reports.
Inman News: "In Freddie Mac's survey, the 30-year fixed-rate mortgage climbed to an average 6.73%from 6.63% a week ago.... Frank Nothaft, Freddie Mac vice president and chief economist, said the climb in mortgage rates 'nearly eliminated the declines made in rates over the previous three weeks. In addition, consumer credit jumped by $12.9 billion in May, almost double market expectations.' "
Bankrate.com's average 30-year-mortgage interest rates this week: 6.82% in L.A., up from 6.78% a week ago.
Freddie Mac Timeline
6/14 6.74%
6/21 6.69%
6/28 6.67%
7/5 6.63%
7/12 6.73%
Thoughts, comments, insights always welcome. E-mail story tips to lalandblog@yahoo.com
A note: Please keep comments respectful and free of profanity.
 You know the headline: The Fed held rates steady, and mortgage rates continued to back up just a tiny bit -- Freddie Mac's average for 30-year fixed rates is 6.67%. Our favorite Fed-watchers spent the week in gloomy moods, worrying about further subprime fallout.
Bloomberg's Caroline Baum says the subprime mess is beginning to remind her of the savings and loan crisis: "Subprime delinquencies may cause problems for everyone from potential home buyers to small investors to the Federal Reserve to the man on the street. It's something everyone should care about."
At Inman News, Lou Barnes (subscription required) sees trouble, trouble, everywhere. If housing prices fall? "That would extinguish the equity in another 15% of households beyond the 15% that have little or none now," and that means more foreclosures. The next shoe to drop on Wall Street: "S&P and Moody's are soon to be exposed in the worst systemic rating error ever. They are going to have to re-rate hundreds of billions of new-age mortgage paper...." That would be bad news for the investors who support the mortgage industry.
Pimco's Bill Gross is also worried about subprime fallout: "Currently 7% of subprime loans are in default. The percentage will grow and grow like a weed in your backyard tomato patch." Gross predicts the next Fed move is a cut in rates sometime in the next six months.
At Bankrate.com, Fed blogger Greg McBride sees no evidence the Fed is about to act: "The Fed is on the sidelines and not with their helmets on, chinstraps buckled, waiting to go in the game. They're on the bench sipping on some Gatorade."
Comments? Thoughts? Who is your favorite Fed-watcher, and what are they saying?
Photo Credit: Ben Bernanke by Reuters
 As you probably know, Gentle Ben Bernanke (pictured) and his Fed friends left their key short-term rate unchanged today at 5.25%.
Long-term rates, and mortgage rates, continued to slip this week -- investors witnessing the carnage in the subprime market are paying more for stability, which drives rates down.
Inman news reports: "In Freddie Mac's survey, the 30-year fixed-rate mortgage dipped to an average 6.67% from 6.69% last week.... In Bankrate.com's survey, the average 30-year fixed mortgage rate this week in Los Angeles held steady at 6.79%.
Freddie Mac Timeline
6/14 6.74%
6/21 6.69%
6/28 6.67%
Comments? Insights?
Photo Credit: Reuters
 Good Morning. Freddie Mac had 30-year fixed rates averaging 6.69% last week, down slightly from the week before. Without further ado, our random roundup on rates:
Conrad De Aenlle writes in the New York Times: "No change in key interest rates is foreseen when the Fed meets on Thursday. The federal funds rate stands at 5.25%." The real news will be the Fed's statement, and what hints it gives about whether the Fed is leaning toward higher rates or lower rates.
We like Lou Barnes at Inman News for several reasons, one being his willingness to make predictions: "Everyone assumes the 10-year T-note will make a run through 5.25%, and mortgages will climb to 7%, but I don't think we will stay that high unless there is worse news on inflation or the global economy runs away from the central banks."
Caroline Baum at Bloomberg reasons that the recent rise in interest rates is not entirely a bad thing: For an individual presented with a 6.75% 30-year rate compared with 6.125% six months ago, the choice may be unpalatable. For the economy as a whole, however, it's a "positive development,'' says Jim Glassman, senior U.S. economist at JPMorgan Chase & Co. "It says the economy is getting better, driving the natural level of rates higher.''
We'll continue to monitor fallout from the Bear Stearns hedge fund mess. The New York Times' Gretchen Morgenson (sorry, no link, she's behind the pay wall) is predicting more trouble: "Do the math: Bear Stearns is paying $3.2 billion to shore up a fund that once had $10 billion in value, according to one investor. That’s 32 cents on the dollar. ... Values of securities higher up in the capital structure of these asset pools will likely take a hit. The bad performance is bleeding upward."
Your thoughts? E-mail story tips, and links to your favorite Fed watchers, to lalandblog@yahoo.com.
Photo: Fed Chairman Ben Bernanke, by Reuters
 Why didn't we think of this earlier? A weekly update on mortgage rates, via the reliable crew over at Inman News:
"Long-term mortgage rates dipped this week as weak home-builder optimism and lower housing starts took pressure off inflation, Freddie Mac and Bankrate.com reported today."
Numbers: Freddie Mac's survey showed 30-year fixed-rate mortgages at 6.69%, down slightly from 6.74% last week.
Bankrate.com's average 30-year-mortgage interest rates this week in Los Angeles: 6.79% with 0.44 point.
Freddie Mac Timeline (Time began last week)
6/14 6.74%
6/21 6.69%
Photo Credit: Reuters
Comments are always welcome; e-mail story tips to lalandblog@yahoo.com
 Good morning, and happy Father's Day. Today we're kicking off a new weekly feature: a Sunday Morning Interest Rate Roundup. We again seek your feedback on this: tell us about fed-watchers we should be including here (e-mail: lalandblog@yahoo.com).
OK, here goes: Freddie Mac reports the average rate on 30-year fixed mortgages was 6.74% on June 14. What's next for rates? Rates leveled off late in the week after a spike, and several commentators see a holding pattern. Inman.com's Lou Barnes writes, "I think there are excellent reasons for faith in stability near here, low-fee mortgages about 6.75%."
The L.A.Times' Tom Petruno also gives a nod in this direction: "Many Wall Street analysts believe that long-term interest rates in the U.S. aren't likely to continue the sharp upward move of the last few months." But he warns of two risks to that forecast: a real pickup in inflation, or foreign investors souring on U.S. bonds.
Bloomberg's Caroline Baum snuffs out any hope of a rate cut this year: "Interest-rate futures markets erased the last vestige of hope that the Fed would cut its benchmark interest rate this year."
Bankrate.com's Greg McBride, who blogs about the Fed, disagrees: "I have believed, and will continue to believe until economic data convinces me otherwise, that the next rate move by the Fed -- whenever that might be -- will be to cut rates, if only subtly to assure continued economic growth. The rise in bond yields, to me, doesn't indicate the Fed is any more likely to raise rates."
Thoughts? Comments?
Photo: Fed Chairman Ben Bernanke
Photo Credit: Reuters
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