ECONOMY

Fed again slashes key interest rate

Cheaper credit might help housing market, but inflation fears remain.

By Neil Irwin
THE WASHINGTON POST
Wednesday, March 19, 2008

WASHINGTON — The Federal Reserve took another aggressive step in its campaign to prevent a potentially devastating recession Tuesday, cutting a key interest rate by three quarters of a percentage point. The stock market rallied the most in five years, with the Dow Jones industrial average rising 420 points.

Fed policymakers cut the federal funds rate, at which banks lend to each other, to 2.25 percent. The Fed has slashed that rate by 3 percentage points since September, its most aggressive two months of action in a quarter-century.

That lower rate is expected to make it cheaper for Americans to take out adjustable-rate mortgages and borrow money through credit cards or auto loans, and for businesses to borrow money to expand.

But the Fed’s action could also help fuel inflation, some economists said. By reducing the interest rate that the central bank charges financial institutions for short-term loans, the Fed makes money more readily and cheaply available. If it miscalculates, it can pump too much money into the economy, fueling excessive demand for goods, housing and capital spending — and driving up prices.

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Tags: economy, fears, fed, housing market, inflation, interest rates, mortgages, real estate by Aria
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By Les Christie, CNNMoney.com staff writer

Last Updated: March 7, 2008: 12:23 PM EST

NEW YORK (CNNMoney.com) — Mortgage costs just got cheaper for buyers in high-cost areas.

The size of loans that can be guaranteed by Freddie Mac and Fannie Mae was raised today by the Office of Federal Housing Enterprise Oversight. The new, higher loan limits will stay in effect through the end of the year, allowing the government sponsored enterprises (GSEs), to buy much higher-priced mortgages in some areas of the country.

Also today, the size of the loans that the Federal Housing Authority (FHA) can insure was raised by Housing and Urban Development (HUD).

Both moves will lower borrowing costs for buyers of higher priced homes, and aim to boost flagging real estate markets.

Best time to buy a home in four years

Previously, Fannie and Freddie could only insure mortgages of up to $417,000, called conforming loans. That meant, assuming a 20% down payment, that only buyers of homes costing $521,500 or less were eligible for mortgages with GSE backing.

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Tags: FHA, Fannie Mae, Freddie Mac, GSEs, HUD, buyers, economy, financing, foreclosure, investing, lending, loans, mortgages, real estate, real estate outlook, when to buy, where to buy by Aria
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BERNANKE’S MORTGAGE RELIEF PLAN

By Jeannine Aversa
ASSOCIATED PRESS
Wednesday, March 05, 2008

WASHINGTON — Ben Bernanke is using his bully pulpit to try to keep more Americans from getting swept up in a wave of home foreclosures.

Bernanke, chairman of the Federal Reserve, urged mortgage lenders Tuesday to reduce the principal on loans for many people whose homes are no longer worth as much as what they owe. He also suggested that the Federal Housing Administration broaden its insurance program and let more people switch from subprime mortgages to cheaper, federally insured loans

“This situation calls for a vigorous response,” Bernanke said in a speech to a banking group in Orlando, Fla.

Even with relief efforts under way by industry and government, foreclosures and late payments on home mortgages probably will increase “for a while longer,” Bernanke warned.

Rising foreclosures threaten to increase the problems in the housing market and the economy.

“Reducing the rate of preventable foreclosures would promote economic stability for households, neighborhoods and the nation as a whole,” Bernanke said. “Although lenders and servicers have scaled up their efforts and adopted a wider variety of loss-mitigation techniques, more can, and should, be done,” the Fed chief said.

Some owners can avoid foreclosure by selling their homes to pay off the loans. But that’s not possible when the homes are worth less than the mortgage balance.

Bernanke acknowledged that reducing balances might be a tough sell to lenders.

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Tags: austin, austin real estate, economy, financing, foreclosure, investing, lending, money, mortgages, politics, real estate, real estate outlook by Aria
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