FED’s Kroszner Comments
In a speech today in Philly, FED Gov. Kroszner remarked about the current condition of financial markets, specifically referring to those involving mortgages. He spoke extensively about price discovery in more recent investment vehicles such as SIVs. Noting that with any young investment there is a lack of history which is useful in assessing risk and ultimately price. Kroszner commented that it was extremely important for newer investment vehicles to improve information-gathering so that pricing could be more accurate. In reference to news of a cooperation between lenders and the government; he explained this would be in the best interest of all parties involved from Main Street to Wall Street to resist an increase in foreclosures. His comments pointed out the most beneficial borrowers of a rate freeze on ARMs would be those on-time with payments who would soon see an upward reset. It seems the FED and Treasury are hoping to stagger foreclosures to buy time for price discovery regarding investment vehicle underlined with mortgages. More generally a reduction in foreclosures would loosen up credit tightness and leave homeowners with more money for personal consumption.