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Four of the the country’s 19 largest banks do not have enough capital to withstand another economic downturn, if one occurs, according to the Federal Reserve’s latest stress test for banks.

Would you have guessed the four banks at risk named in the report are Citigroup, SunTrust, Ally Financial, and MetLife?

The hypothetical stress test, conducted annually by the Federal Reserve but not usually released publicly, analyzes if banks could weather the storm if the economy saw a 21 percent reduction in home prices, 13 percent unemployment, and a 50 percent drop in stock prices. The test aims to see which banks would be able to continue to lend money to individual and businesses even if such catastrophic losses occurred.

For any banks that fail the stress test, the Fed can force them to raise money, such as by selling additional stock or issuing debt.

For the banks that did pass, they are able to raise their dividends and take action in luring more investors to their stocks. This year’s results are “clearly good news — the U.S. banking system can now withstand a quite severe recession without falling over,” Douglas Elliott, a fellow at Brookings Institution, told the Associated Press. Among the banks that passed the stress test are U.S. Bancorp, JPMorgan Chase, and Wells Fargo.

Source: “Federal Reserve Annual Stress Test Fails 4 of 19 Big Banks,” The Associated Press (March 12, 2012)

New programs and “housing policy interventions” are needed to help the real estate market rebound and boost growth in the overall economy, three Federal Reserve policymakers said Friday. 

The latest statements join a range of calls by the Federal Reserve in the last week urging for more government intervention to help the housing market. Last week, the Fed released a 26-page white paper  providing an outline on how the government needs to take more aggressive action to prevent home values from falling further, seek solutions to the foreclosure crisis, and loosen stringent underwriting standards that are keeping borrowers from securing mortgages or refinancing. 

New York Fed President William Dudley said on Friday that the housing market is “only one factor behind the frustratingly slow” economic recovery, but it’s an “important one that deserves our attention.”

“Forceful and effective housing policies have the potential to significantly influence the speed and strength of our recovery,” Fed Governor Elizabeth Duke said in separate comments made last week at an event in Virginia. 

Source: “Fed Officials Focus on Housing ; Emphasis put on Importance of Sector to Overall Economy,” Bloomberg News (Jan. 9, 2012) and “Fed Officials Push More Stimulus for Housing,” Reuters News (Jan. 9. 2012)

Beginning Jan. 25, the Federal Reserve will start to publish a forecast four times a year that includes predictions about the direction of short-term interest rates, The New York Times reports. The report will include a summary of how long the Fed expects to keep short-term rates at current levels.

“More guidance on rates might help lower long-term yields further — in effect providing a kind of stimulus,” the Associated Press reported in an article announcing the change. “Lower rates could lead consumers and businesses to borrow and spend more. The economy would likely benefit.”

The Fed’s move will provide greater insight into its methodology and decision-making. 

Since 2008, the Fed has left its key short-term rate at record lows near zero. This past summer the Fed announced it intended to leave the rate low until at least mid-2013. 

 Source: “Fed to Publish a Forecast of Rate Moves, Guiding Investors,” The New York Times (Jan. 3, 2012) and “Fed to Regularly Forecast Interest-Rate Changes,” Associated Press (Jan. 3, 2012)

More news from Placerville in the “Sierra Foothills” of El Dorado, Placer, Amador and Sacramento Counties of California at: www.sierraproperties.com or www.dougandbudzeller.com

At its Tuesday meeting, the Federal Reserve reaffirmed its pledge to keep interest rates low and opted to not take any new measures to bolster the economy, saying the economy has already been showing signs of “expanding moderately.” The economy has shown some improvement in employment and consumer spending in recent weeks. However, the Fed cautioned at Tuesday’s meeting that the “housing sector remains depressed.”

In reaffirming a pledge it first issued in August, the Fed said the federal funds rate — which serves as a benchmark rate for many types of loans, including mortgages — will remain near zero until mid-2013. The Fed said it will continue with plans to move $400 billion of its bond portfolio into longer-term securities, which ultimately could send long-term interest rates even lower.

Overall, the Fed said the economy has steadily been showing signs of improvement and is on track to post its strongest gains of the year in the final months of 2011. But the Fed said that the European debt crisis will continue to pose a major threat to recovery with “strains in global financial markets continue to pose significant downside risks.”

Let’s hope this helps your market and ours in Placerville, El Dorado County, CA.

 Source: “U.S. Fed Leaves Rate Unchanged, Says Economy Expanding Moderately,” Bloomberg News (Dec. 13, 2011)

The Federal Reserve doesn’t traditionally make a point to reveal its predictions for future actions on interest rates widely known to the public — that is, until recently. This summer in a rare step, the Fed announced that it would keep short-term interest rates at nearly zero until 2013. The Fed may start making it a tradition to reveal more with a regular forecast of its future decisions on interest rates. 

The Fed may consider adopting such a move at its Tuesday meeting, but if it does adopt an action, it most likely wouldn’t be announced to the public until January, The New York Times reports. 

According to a recent article, the minutes of the Federal Reserve committee’s last meeting in November revealed that “participants generally expressed interest in providing additional information to the public about the likely future path of the target federal funds rate.”

If the Fed adopted a forecast, it likely would predict where interest rates are heading for the next three years, and it would be similar to the forecasts it already publishes about economic growth, unemployment, and inflation four times each year, The New York Times reports. 

 Source: “Fed to Weigh Publishing a Forecast on Rates,” The New York Times (12/ 11/11)

Other news or help from the Sierra Foothills, El Dorado, Placer, Amador or Sacramento Counties of California at: www.sierraproperties.com or www.dougandbudzeller.com

The Federal Reserve on Wednesday issued a new call about the importance of fixing the housing market, which could then have a trickle effect in strengthening the rest of the economy.

The Fed will consider buying more mortgage-backed securities to help, said Ben Bernanke, the Fed chairman. Such a move could send borrowing costs even lower. 

“The housing sector is a very important sector,” Bernanke said at a news conference. “Problems in that sector are a big reason why our economy’s not recovering more quickly.” The Fed is holding a two-day policy meeting — which ends Thursday — to weigh options. 

Economists believe that if more people were buying homes then it could lead to a boost in consumer purchases for other sectors, from furniture to appliances. They note that the housing market has led the economy out of recessions in the past, since it creates jobs and more spending on goods and services. Plus, the Placerville, El Dorado County, California of the “Sierra Foothills Region” offers great opportunities and home values.

Source: “Fed Focus: Housing Could be Key to Stronger U.S. Rebound,” Reuters News (Nov. 3, 2011)

Neighborhoods with a large number of foreclosures and price declines are noticing the biggest drops in lending the last year, according to a new report by the Federal Reserve. 

The Fed said the drop in lending in these areas is partially from a decline in loans to borrowers who don’t use the homes as their primary residences, which often means investors have moved in. The report also found an increase of lower-income borrowers in these communities. 

“Higher-income borrowers accounted for 29 percent of all loans in those distressed neighborhoods last year, compared with 52 percent of loans in those neighborhoods in 2005,” a Wall Street Journal article notes. “In less-distressed neighborhoods, higher-income borrowers accounted for half of all loans in 2005 and 43 percent of loans last year.”

Overall, weak demand and tight credit standards caused mortgage lending to drop in most areas last year. Including our Placerville, El Dorado County, California regions.

Lenders originated 7.9 million mortgages in 2010, down 12 percent from 2009, the Federal Reserve reported in its annual analysis of mortgage data of more than 7,900 mortgage lenders. 

Source: “Housing Slump Hits New Mortgage Loans,” The Wall Street Journal (Sept. 22, 2011)

The U.S. Congress asked Federal Reserve Board chairman Ben Bernanke a key question last week: Where do you and your colleagues believe we’re headed in terms of the national economy?

Bernanke’s reply: There are bumps and potholes on the road to recovery, but the Fed “expects continued moderate (economic) growth, a gradual decline in the unemployment rate (to about 7 percent) and subdued inflation” over the next couple of years.

No sooner had Bernanke delivered his testimony than some of those “bumps” in the road popped up: The Commerce Department reported new housing starts dropped by 5 percent in the latest month, and the National Association of Realtors reported existing home sales down by a similar percentage.

But keep in mind the central point Bernanke was making in his forecast: Troubled though it may look with any single statistical report, the fact is the national economy continues to grow – by about two and a half percent on an annual basis – and many elements of the economy are better off this year than the were the year before.

Take the Commerce Department’s housing starts number: That five percent decline was mainly the result of a big drop in starts of new rental apartment units – not a drop in starts of new single family houses, which were stable.

In fact, the Commerce Department survey found that permits pulled by builders for future construction on single family homes were actually up in three out four of the major regions of the country. Analyzing the government’s data, Bernard Markstein, senior economist for the National Association of Home Builders, was encouraged – and predicted increases in both starts and sales over the coming several months.

The latest sales report for existing homes from the National Association of Realtors also had some bright spots: Sales in June were 10 percent higher than they were in the same month the year before. Even median prices of all homes sold were up slightly, and that’s despite the fact that one third of sales were “distressed” in some way – REOs, foreclosures or short sales.

Meanwhile, hints of a rebound in future sales emerged in the latest report on new mortgage applications to buy homes.

The Mortgage Bankers Association found that purchase applications overall jumped by 3.4 percent – and by 8 percent for FHA loans to buy houses. Those transactions won’t go to closing for two to three months … but they’re a sign of where we’re likely headed.

The U.S. economy is likely to recover more quickly after this recession than it did after the previous two recessions, predicts researchers for the Federal Reserve Bank of San Francisco.

“I see no signs of a double dip,” said John C. Williams, director of research at the San Francisco Fed. “The economy continues to gain momentum, and consumer spending and business investment continue to improve.”

The prediction goes counter to what many analysts believe, but Williams pointed to surveys that show home, car, and retail sales are up. “It’s kind of a natural part of the process — you cut back for a couple of years, and then you need to replace things eventually,” Williams said.

Source: Los Angeles Times, Alana Semuels (05/18/2010)