It should be clear at this point that foreclosures will accelerate. Many homeowners struggle with payments, and banks are radically increasing the credit spreads (mortgage rates are going up as the 10 year yield falls.)
The Fed needs to think outside the box a bit. They should create a special rate for homeowners to refi, under the expectation that the banks that are currently in deep trouble due to buyback threats will willingly process the refis at a low markup. Perhaps this should be limited to primary residences, I’m not sure. Since such a move would clearly be inflationary, the Fed shoud bump up the FFR at the same time.
This would allow current holders of paper to be paid off (in some measure,) settling the credit markets, and it would greatly slow the foreclosure rate. Housing would still fall, but at a much slower pace. That may not be good for folks that read this board, but it would be good for the overwhelming majority of the country.
If the Fed just sits on its hands, the board members will be much remembered for their fiddling skills IMO.
