The Stock Market, Fed Action & Inaction

by Peter G. Miller
August 28th, 2007

The stock market took a dive today, and why not? The minutes from the Federal Reserve meeting of August 202020 were released this afternoon and they did not suggest a short-term resolution to the current mortgage meltdown:

“Participants,” said the Fed, “noted that investors had become much more uncertain about the likely future cash flows from subprime and certain other nontraditional mortgages, and thus about the valuation of securities backed by such mortgages. Consequently, the markets for securities backed by subprime and other non-traditional mortgages had become illiquid, and originations of new subprime mortgages had dropped sharply. While these markets were expected to recover over time, it was anticipated that credit standards for these types of mortgages would be tighter, and interest rates higher relative to rates on conforming mortgages, in the future than in recent years. However, participants also observed that mortgage loans remained readily available to most potential borrowers, and that interest rates on conforming, conventional mortgage loans had declined in recent weeks, providing some support to the housing sector.”

In English, you can get an FHA, VA or conforming loan right now, today. Operators are standing by.

There seems to be an expectation that the Fed can do “something” to relieve the current mortgage impass. It would help a lot of borrowers if the federal funds rate was reduced, maybe that’s next because lowering the discount rate has not done much — just look at today’s stock ticker.

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This entry was posted on Tuesday, August 28th, 2007 at 3:22 pm and is filed under . You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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