On Tuesday, July 2, the Federal Reserve Board of Governors ruled to help banks continue lending practices and keep a strong capital position.
Due to the recent, unpredictable economic recession, concern rose about the ability of banks to maintain the lending practices, such as FHA loans or VA loans, previously used for homeowners and businesses.
“With these revisions to our capital rules, banking organizations will be better able to withstand periods of financial stress, thus contributing to the overall health of the U.S. economy,” said Federal Reserve Chairman Ben Bernanke.
Thanks to the Federal Reserve ruling, the stress on lending is alleviated for many of the smaller banks, while new, regulatory guidelines help manage requirements for the larger, global lending organizations.
“This framework requires banking organizations to hold more and higher quality capital, which acts as a financial cushion to absorb losses,”Â Bernanke added, “while reducing the incentive for firms to take excessive risks.”
The new rule focuses on common equity tier 1 capital, adjusting the ratio and the buffer to various risk-weighted assets. Also changed is the minimum leverage ratio for all banks – now at four percent – and new minimum supplementary leverage ratio to factor in off-balance sheet exposures. While they might sound complicated, at the center of the Federal Reserve’s changes is the goal to make lending more stable for homeowners, businesses, and first time home buyers.
The average 30-year fixed mortgage rate is also changing, now at 4.46 percent. The rise has increased home sales and prices, and with that, a possible jump in the number of home buyers financing, either with an FHA loan, VA loan, or other mortgage and loan options.
While the growing mortgage rate might be concerning to some, it is still well below record highs, and is widely considered a bargain. The highest rate in recent memory was 8 percent in 2000, according to Reuters.
A few housing markets have the signs of growing stronger than most, according to Local Market Monitor. Several Texas cities like San Antonio and Dallas have a good combination of job growth and population growth, fueling a booming market.
“Adoption of the capital rules today is a milestone in our post-crisis efforts to make the financial system safer,” Daniel Tarullo, a Federal Reserve governor, said. “These new rules are an essential component of a set of mutually reinforcing capital requirements.”
Getting your personal finances under control is the first step to qualifying for a home loan. Freedom Mortgage offers some of the latest advice on comprehending a fluid housing market from improving your home value to tips on comparing mortgage loan rates.
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