Bernanke Urged to Do More to Ease Bank Funding Costs (Update1)
By Scott Lanman
April 30 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke may need to step up his effort to unfreeze bank funding markets as a surge in borrowing costs blunts the impact of the cash auctions the central bank introduced in December.
The cost of obtaining funds for three months has risen by 0.33 percentage point since the Federal Open Market Committee's last meeting on March 18. The jump may force homeowners with variable-rate mortgages and some companies to pay more on their loans at a time when economic growth is faltering.
Policy makers may discuss the results of the $100 billion- a-month Term Auction Facility when they gather for the second day of their two-day meeting in Washington to set interest rates. The central bank will probably increase the size and duration of its biweekly auctions, according to economists at Barclays Capital Inc. and other firms.
``There's clearly a need for the Fed to do more,'' said Charles Lieberman, a former New York Fed economist who's now chief investment officer of Advisors Capital Management LLC in Paramus, New Jersey. ``The underlying problem'' is that banks and other investors are ``still nervous'' about lending to each other, he said.
The FOMC may also lower its benchmark rate by a quarter point, to 2 percent, as officials attempt to spur economic growth. Traders anticipate the central bank will then take a breather from its series of rate cuts, futures prices show. Today's meeting started as scheduled at 9 a.m. in Washington and a statement is scheduled for release around 2:15 p.m.
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Jim,
According to the article in Bloomberg (below):
"About $460 billion of adjustable-rate loans are scheduled to reset this year, according to New York-based analysts at Citigroup Inc.".
"Nevada led the nation with the highest foreclosure rate in the first three months of the year. Filings rose 137 percent to 19,595 from the year-earlier period. One in every 54 households there was in default or foreclosure..."
One in every 54 households or 1.85% for the highest foreclosure rate in the US. That is a low foreclosure rate for the moment! Nevertheless the banks have made $300 billion in writedowns so far.
House prices are expected to go down for the next 2 years at least. Consequently, I expect to see the foreclosure rate go way up in the next 2 years. Indeed, why would you refinance your mortgage of an asset loosing its value every day?
Imagine what the bank writedowns will be when the foreclosure rate will be picking up in 2011.
According to a 07/2007 Moody's study:
"Subprime ARMs issued during the last three months of 2006 could fare worst of all, with a projected foreclosure rate of just under 20 percent during the fall of 2011."
Regards,
Christopher
U.S. Foreclosure Filings Double in First Quarter, Led by Nevada
By Kathleen M. Howley and Dan Levy
April 29 (Bloomberg) -- U.S. foreclosure filings more than doubled in the first quarter as payments rose for subprime adjustable mortgages and falling home prices left property owners unable to sell or refinance without losing money.
Almost 650,000 properties were in some stage of foreclosure during the quarter, or 1 in every 194 U.S. households, Irvine, California-based RealtyTrac Inc., a seller of foreclosure data, said today in a statement. The number was 112 percent above a year ago. Nevada, California and Arizona had the highest rates.
The median U.S. home price may drop by a record 5.8 percent this year, Fannie Mae, the world's largest mortgage buyer, said April 7. Congress, the Bush administration and regulators have urged lenders to renegotiate terms for borrowers so they can stay in their homes, easing the glut of empty houses. Such efforts may mask the slump's extent by delaying foreclosures, RealtyTrac Chief Executive Officer James Saccacio said in the statement.
``This country needs a cleansing,'' billionaire real estate investor Sam Zell, chairman of Equity Group Investments LLC, said yesterday at the Milken Institute Global Conference in Los Angeles. ``We need to clean out all those people who never should have bought in the first place, and not give them sympathy.''
