This is not a newly discovered issue. We’ve seen Central Bank actions not translating to the desired effect – helping end consumers. Just in 2012 alone we have observed the following: RBA Rate Cuts not translating to lower borrowing rate for businesses/home loans, ECB LTRO does not translate to European Banks lending more, but rather resulted in Banks parking funds back to ECB to beef up their capital ratios, and the list go on and on. Increase in risk assets should always be supported by strength in the underlying economy for long sustainability. Despite this, risk correlated asset prices will surely increase due to any easing actions by the Central Bank.
With current US equities prices reaching 5 year highs, yet Employment and GDP data are far from 2008 levels, how sustainable will this rally be? Also, the Fed has done QE1 and QE2 and 2 rounds of “Operation Twist” that has not deemed to be enough. QE3 is effectively the same thing over again just that the dosage is higher. Will anything change this time round?
The Federal Reserveâ€™s attempt to push aid into the heart of the US economy is being blunted by banks struggling to process mortgage applications fast enough, keeping rates on home loans elevated, according to the largest lenders.
The Fed announced last week that it would buy mortgage-backed securities in another round of quantitative easing â€“ nicknamed QE3.
This was partly designed to ease further the cost of mortgages, but bankers say the impact will be limited by a dearth of loan officers with banks reluctant to cut mortgage rates without the staff to process any increase in business.
â€œIn the very near term [QE3] has virtually no transfer mechanism whatsoever to the customer,â€ said one executive at a leading lender, who requested anonymity. â€œOriginators are massively backlogged in terms of origination volumes.â€
Steven Abrahams, MBS analyst at Deutsche Bank, noted that the yield on mortgage-backed securities fell more than 30 basis points after the Fed announcement.
â€œVery little of that is likely to make it through immediately to consumers,â€ he said. â€œThereâ€™s nothing that will force mortgage originators themselves to lower the rates that theyâ€™re offering to consumers. Right now they have their hands pretty full in terms of the pipeline and managing paperwork and making loans. These folks are busy. Thereâ€™s not a bunch of people on long cigarette breaks.â€
Via – CNBC