The explanation: record or near record bank profits justify paying record or near record banker bonuses.
To earn the profits needed to support the large bonus payouts, banks need the revenue generated by the difference between the high rate of interest charged the borrowers and the cost of funds to the banks.
Frustrated Federal Reserve policymakers on Monday sought an explanation from mortgage lenders as to why the benefits of lower interest rates were not filtering to home buyers as quickly as in the past even as investors benefited.
At an all-day New York Fed workshop, officials from Fannie Mae, Freddie Mac, Wells Fargo & Co and other big lenders will be asked why there is a growing disconnect between the rates Americans pay on home loans, and the yields on mortgage-backed securities (MBS).
The question has puzzled central bank policymakers who worry the situation is undercutting their efforts to stimulate the country's slow economic recovery from recession....There is no reason for the Fed to be surprised.
By adopting the Japanese Model, the Fed signed up for policies designed to protect bank book capital levels and banker bonuses.
What they are witnessing is the consequences of the Japanese Model ... good for bankers, bad for society.
This clog in the passage between the primary and secondary markets undermines an important reason for the Fed's monetary stimulus: kick-starting a housing sector that was at the heart of the 2007-2009 financial crisis, and that has only just begun to show some life.
"There is clearly something that is manifesting as a form of constraint," Jeremy Stein, a Fed governor, said when asked about mortgage lending at a Boston conference on Friday.
"For me it's a little hard to unpack exactly what the mechanisms are, but I think it's something that deserves a fair amount of attention."
Stein highlighted odd differences in the availability of credit, depending on the type of loan, where lenders seem to treat mortgages more conservatively than they do auto loans made to the same household. "Whether it's a regulatory or a put-back risk ... there's clearly just quantitatively not the volume happening," he said.
The Fed wants to know what role put-back risk - the possibility underwriting of a loan violates Fannie and Freddie guidelines, forcing a bank to repurchase it from the agencies - plays in the widening spread between secondary and primary markets.It will receive the lion's share of the blame for the high interest rates.
It also wants to know what role bank profit plays.It is the actual driver of the high interest rates.