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Dennis Lucey » Comments » URE
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Financial Stocks Respond to Fed Move [View article]
Regarding the TSLF announced by the Fed today, it will be interesting to see how this will actually affect lending by banks. Despite several cuts in the Fed Funds rate and increasing amounts of cash offered through the TAF, mortgage rates have risen over the last two months. This isn't just a reflection of the capital crunch faced by lending institutions; it's also a reflection of the risk in financing a borrower's purchase of a house at today's prices, seeing that price decline, and potentially watching the borrower walk away as their equity declines.
The TSLF may be good for freeing capital for financial institutions (see TMA), but if the intent is to support financing for the housing market, it will only prolong the decline in housing prices, perhaps not in terms of dollars, but surely in terms of time.