The Federal Reserve Needs to Make Major Interest Rate Cuts

adjustable rate mortgage Already on a downward slide, the U.S. housing market will only worsen in 2008 in the majority of markets if the Federal Reserve does not cut the prime interest rate substantially, according to the latest analysis by Housing Predictor.

Near record foreclosure levels in many local markets and late payments are increasing as a result of the subrime loan melt down. However, foreclosures on conventional mortgages and secondary financing are also on the upswing. Adjustable rate mortgages that are resetting and other exotic conventional mortgages now called “Junk Mortgages” traded on Wall Street like junk bonds are the culprit.

The U.S. housing crisis is worsening. Large national home builders are holding back on new construction, offering incentives to sell off the homes that have already been constructed. More vacant homes are listed for sale across the country than ever before.

The downward cycle in many major urban markets is deteriorating more rapidly with falling prices. Some markets in California and Florida have already seen depreciation of 50% from their record high peaks.

The formula by which Americans have purchased mortgages to buy homes has all been changed, and very few even knew about it. Wall Street traders have been selling packages of mortgages in huge portfolios to investors and as a result the entire mortgage lending industry has been transformed. Mortgage companies packaged their loans up and sold them off in a tidy package with little restriction until the music stopped.

The fall out has resulted in a U.S. housing market that in some areas of the nation is in free fall. Other markets remain strong with growth. North Carolina and Tennessee markets are some of the strongest in the nation along with Texas and New Mexico.

Investors are flocking to Detroit, Michigan to pick up what they believe are “steals” on homes that have been foreclosed.

The U.S. housing market is under going unprecedented times. The U.S. Savings and Loan Fraud Crisis produced the highest number of foreclosures in history in the early 1990’s. But the present housing crisis threatens with its additional “Junk Mortgages” to damage the U.S. economy in major ways. The Federal Reserve Board needs to take serious action soon to improve what is now a near run away situation.

The Fed has manipulated the nation’s economy with low interest rates over the better course of the past two decades, and if they don’t heed serious attention to the housing market, cutting the prime substantially by at least 1% the only natural economic reaction will be a full fledged national recession of catastrophic proportions that will take years to recover from.

Leave a comment

Your email address will not be published. Required fields are marked *