Has your mortgage business been battered by volatile interest rates? Blame it on the Fed.
That's the view of Bert Ely, a consultant and frequent critic of Fed policy. His argument in a nutshell: The Fed, like a New York cab driver, has a heavy foot on the gas pedal and on the brakes, making for a jerky ride for interest rates that is especially hard on residential lenders.
"The housing finance industry, and mortgage brokers, are at the tip of this interest rate whip, and pay the price as mortgage originations fluctuate wildly," Mr. Ely said at a recent convention of the National Association of Mortgage Brokers.
The Fed's intervention in short-term interest rates by setting targets for the federal funds rate is also sluggish, so its actions are not only harsh but tardy, he said.
He added that this intervention and other federal policies, such as the tax deduction for mortgage interest, push interest rates below market level. That rate decline, he said, leads to inflationary credit growth and is followed quickly by higher interest rates.
"Fortunately, the Fed is steadily losing its ability to influence interest rates as electronic technology - the computer and telecommunications - breaks the shackles of central bank controls over money, credit, and interest rates," Mr. Ely said.
One result should be a low inflation rate, and thus lower interest rates, and a more stable mortgage originations marketplace, the consultant said.
How low will rates go? Below 6% on fixed-rate mortgages, Mr. Ely said. "If the experience of the early and mid-1960s is a reasonable guide, the real rate of interest on 10-year Treasuries should decline after a few years of low inflation. Rates on fixed-rate mortgages will track a declining yield on 10-year Treasuries."
Does Fannie Mae sound any sweeter than Federal National Mortgage Association?
Fannie Mae seems to think so. It has sent out a publicity kit asking that it hereafter be referred to simply as Fannie Mae, rather than its full legal name or even its initials, FNMA.
The housing finance agency, which also happens to hate being called "agency," has introduced a new logo, a cute little house with a green lawn under white clouds and a blue sky.
It's all part of a corporate identity campaign that is aimed at tidying up the image of the financial giant and giving it more consumer appeal.
Some Washington observers took a more cynical view, saying the move was an effort by the company to distance itself from the federal government in the public mind.
The secondary market for mortgages is becoming an increasingly hot topic for thrifts as the industry looks for ways to redefine itself. Even smaller, community-based thrifts appear eager to get up to speed on the subject.
To help them along, America's Community Bankers has just published a guidebook, "The Secondary Mortgage Market: Policies, Practices and Opportunities," to help its members decide whether to broaden their horizons by selling some or all of their loan production.
"Rather than be left out of the mortgage lending business during periods of falling rates, the portfolio lender with the capacity to trade in the secondary market can generate profits in either a falling or rising interest rate environment," writes Sam Pincich, the book's author and program manager for technical services at America's Community Bankers.