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Wow! What a ride–the Term Auction Facility Program
December 13th, 2007 categories: Real Estate Finance, Real Estate News
We’re up, we’re down…are we up or are we down? The last two days have offered quite a wild ride in the markets.
At the Federal Open Market Committee (FOMC), the Feds announced a 0.25% reduction on both the Discount Rate and the Fed Fund Rate. Traders were anticipating a 0.5% Fed Rate Cut and yesterday’s news caused traders to panic and to sell off stocks (Good news for mortgage rates).
This morning in a surprise announcement, the Central Banks worldwide announced the creation of a temporary auction facility to keep banks funded and inject $40 billion dollars of liquidity into the credit markets. Initially, stocks soared on the news.
In fact, I was quite startled at about 6.50 a.m. this morning, while I was on the treadmill at the gym, when the attorneys in the room started high fiving each other over the elliptical trainer handlebars, in a boisterous “locker room” style celebration, as they watched their stocks regain some of yesterday’s losses.
Stocks went on to give back some of their early gains to end moderately higher than yesterday. Bonds benefited late in the day and most lenders came out with a midday rate change announcing price improvements (More good news for mortgage rates).
Today’s announcement is a historical move that many hope will avoid a year-end liquidity crisis. This is a huge boost to the cycle of money and credit. In fact, it will most likely improve the credit crisis more than the Fed rate cuts.
The short-term actions give banks access to more money in a less costly way. While this bold move will inject liquidity and help prevent an end of year crisis, it may have more far reaching positive effects.
Less costly and more readily available money should translate to better interest rates on home mortgages. And maybe, just maybe, if banks have more access to cheap money, we may see a reintroduction of more mortgage products in the future.
Bush’s Foreclosure Relief Plan will help some, but not most. It is a nice PR move for Bush and while I do hope it offers relief to many, today’s announcement by the Central Banks should go much farther in improving the current credit crisis.
Lysa Catlin
CMC Finance, Inc.
(858) 456-3000
