Federal Reserves Cuts Interest Rate To Ease Foreclosure Crisis

November 5th, 2007 | Tags: Foreclosure Crisis

The Federal Reserve has slashed interest to 4.5% on Wednesday 31^st October – this being the second cut in 6 weeks. Mid-Michigan consumers are optimistic that this will help the housing market to get back on its rails. The federal funds rate was cut by ¼ of a percentage point.

Ben Bernanke, the Federal Chairman and all his colleagues (except for one lone voice of dissent) agreed to this measure. Immediately banks started to cut their prime lending rates for their prime customers bringing it down to 7.5%.

But there is no cause for rejoicing, as home equity loan and credit card rates are not coming down automatically. This is the gloomy opinion of economist from Michigan State University, Charles Ballard. The cut will make it smooth for lending housing to grant loans by reducing the short-term interest charged to banks. In turn banks might lower interest and mortgage rates.

Michigan is one of the worst foreclosure offenders in the country. During the third quarter it ranked fourth with every one house out of 104 properties slipping into foreclosure. This means that the jump has been 65.7% from the second quarter and 110.7% higher than what it was during the same time in 2006. The foreclosure related issues include default and auction notices together with bank or lender repossessions. The scenario in mid-Michigan was relatively better than the rest of the state with the ratio being 1:110 in Ingham County, 1:188 in Eaton County and 1:209 in Clinton County.

It seems that the Federal fiscal measure of rate cut will not by itself help those struggling with sub-prime mortgage dues. But if the market starts to move then it will be easier for people to refinance to prime mortgages and get out of the clutches of the ARM’s. This will give a push to the buying market and pep up the mood of the real estate.

It is not unusual for people to trip up on mortgage dues due to reasons like job loss, divorce, ill health or depression in the local economy. But when the number of foreclosures runs into millions across the nation the accusing finger points to the sub-prime category of loans. Its teaser rates roped in thousands with false promises and irresponsible borrowers fell for the trap. Today the entire socio-economic complexion of the country has paled because of it.

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