Banks Fail to Lower Mortgage Rates as Bernanke Cuts (Update1)

[Joanne98]

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.''
http://www.bloomberg.com/apps/news?pid=20601213&sid=a3Vhp40UwPFM&refer=home

[Mountainman]

1. So, Fed loan money to consumers like Bear Sterns.

[shaniqua6392]

2. My daughter just bought a house

and the cheapest rate she could find was 5.875%. We found another option because her income is so low that she qualified for a state funded loan here in Michigan and she got that for 5.1%. With all the breaks that the Fed has given the lenders, shouldn't they be charging about 5%??

[alstephenson]

3. Yep.

[Warpy]

4. Rock, meet hard place

They need to keep those rates artificially high because they're losing money hand over fist on "assets" they bought from hedge funds which have turned out to be nothing but bad loans laundered through the system.

They are desperate to build their assets back up. They're teetering on the brink of insolvency.

Don't expect a break on a mortgage rate any time soon. It's just not going to happen.