Banks Fail to Give Homeowners Lower Rates as Bernanke Cuts Borrowing Costs

[Purveyor]

By Kathleen M. Howley

March 27 (Bloomberg) -- Marjorie Killian is eager to buy a home in San Diego and is pre-approved for a mortgage. She won't make an offer on a property until she can get a fixed rate of 5.5 percent, she said.

Killian is just the kind of buyer that Federal Reserve Chairman Ben Bernanke needs to entice to revive the U.S. housing market and halt its drag on the economy. Lenders aren't helping the central bank even after they've been given seven interest rate cuts and a new program designed to jumpstart borrowing.

The difference between the 10-year government bond yield and the average U.S. fixed mortgage rate was 2.7 percentage points last month, the widest spread since 1986, data compiled by Bloomberg show. Banks are defying Bernanke and hoarding cash after writing down the value of more than $200 billion of mortgage-related securities since July. The banking industry's earnings fell to a 16-year low of $5.8 billion in the fourth quarter of 2007, ending six years of record profits, according to the Federal Deposit Insurance Corp. in Washington.

``The Fed is trying to drive a car with only slight control of the steering wheel and no control of the gas or the brakes,'' Clive Granger, the 2003 Nobel laureate in economics and professor emeritus at University of California, San Diego, said in an interview. ``In order to stabilize the economy, people need access to mortgages at rates they can afford, and so far the Fed hasn't been able to do much about that.''

`Nervous' Banks

Banks are rebuilding their battered balance sheets and are likely to remain ``skittish'' about passing on lower borrowing costs to homebuyers until their capital levels improve, said Henry Savage, president of PMC Mortgage Corp., an Alexandria, Virginia-based lender that serves seven states.

``For the moment, fixed mortgage rates seem to have disconnected from the 10-year Treasury bond,'' Savage said. ``Lenders are nervous.''

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http://www.bloomberg.com/apps/news?pid=20601103&sid=a3Vhp40UwPFM&refer=news

[El Pinko]

1. Plummeting home values and more people sending "jingle mail" means risk is higher...

...therefore rates will not come down. Homedebtors should count their blessings if they're approved at all in this environment.

[bullimiami]

2. once again the taxpayers are left holding the bag while some giant industries profits are protected.

seriously. fuck their profits. they arent losing money, theyre just mad they arent making the record profits they did during the bush rape-fest.

[Xithras]

3. Very true.

I was looking at doing a buy/lease with my sisters house a couple of months ago to keep her out of foreclosure (I buy it, and lease to her). I have a good income, had 25% down, and have a long, well established, and nearly flawless credit history. The best rate I could get was 6.5% AND they wanted points at closing because my credit history had ONE thirty day late on ONE of my nine credit accounts...THREE YEARS AGO. We're not talking about a shady operator here, but one of the areas oldest and most respected mortgage brokers.

[napi21]

4. Does that surprise you??? More proof that PROFIT is the ONLY

THING! Bernake should have linked the reduction in rates to a mandatory in kind reduction to consumers. If he doesn't have the suthority to do that, he should have worked with congress to pass the mandate!

[RB TexLa]

5. Doesn't say if Ms. Killian mortgage and credit qualifies for a 5.5% rate or not

If no one offers it to her at that rate, it probably doesn't. Just because a person says they are holding out for a certain rate doesn't mean they either deserve or will get that rate.