Wednesday, September 19, 2012

Fed Policy To Stimulate Housing Market Faces Some Hurdles

The Fed has taken steps to lower the cost of borrowing.  This article describes several factors which may cause a delayed response.  The basic problem is that Fed has made it possible for banks to borrow at lower rates but there are reasons why they may not quickly provide lower cost mortgages.  They are already processing mortgage refinancing applications at their capacity.  They will have to create more capacity in order to process more loans.  In the meantime they will keep interest rates at their current low level.  The other big problem is that many potential borrowers do not meet new credit standards due to a of a variety of reasons.   In the meantime, banks will see profits rise as the spread between their cost of money and the interest rate increases.

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