Having a hard time getting credit? So is everyone else, from homebuyers to businesses. After the rogue lending wave of the past decade, bankers have gotten very choosy about extending credit.
That’s going to be a hot topic at a meeting of Federal Reserve officials who are gathering in Jackson Hole, Wyo., for their annual thinkfest. This year, they’ve got a lot on their plate.
The dismal housing market, for one. Despite the Fed’s moves to slash interest rates to the bone and shell out over a $1 trillion to buy shaky mortgage bonds, home sales have fallen through the floor. It’s not that mortgages are too expensive; the average rate on a 30-year fixed loan fell to 4.36 percent this week, the best deal for home buyers since Freddie Mac began tracking rates in 1971.
The problem is that the Fed’s rate-slashing hasn’t prodded skittish lenders to take on more risk. With home prices still falling in many parts of the country, lenders are looking at continued losses from all the bad mortgages they wrote during the housing boom. The latest numbers on mortgage delinquencies from the Mortgage Bankers Assn won’t do much to calm lenders’ nerves.
The number of homeowners falling behind on their mortgage payments seems to be topping out, but roughly one in ten mortgage holders face foreclosure. Forecasters at Capital Economics figure that means as many as four million households may lose their homes; that's on top of the nearly three million homes that have already been lost.
So what’s a central banker to do? Unfortunately, the folks at the Fed have few options. They can buy more bonds, pushing long-term rates even lower. But that will hurt consumers, who are already getting paid next to nothing on their savings accounts.
One idea Fed Chairman Bernanke & Co. are looking at: stop paying banks interest to keep their money in the Fed’s vaults. With bankers so skittish, paying them not to lend may be doing more harm than good. The Fed could even charge banks interest to stash their cash, giving them more incentive to start lending it again.