FED CUTS KEY INTEREST RATE TO 1 PERCENT

The Federal Reserve continued to shave points off the federal funds rate, reducing it by 50 basis points to 1 percent today, the lowest rate in half a century. Analysts characterized the move as another effort to stave off a prolonged downturn in the nation’s economy.

“The pace of economic activity appears to have slowed markedly, owing importantly to a decline in consumer expenditures,” the Fed said in a prepared statement. “Business equipment spending and industrial production have weakened in recent months, and slowing economic activity in many foreign economies is damping the prospects for U.S. exports. Moreover, the intensification of financial market turmoil is likely to exert additional restraint on spending, partly by further reducing the ability of households and businesses to obtain credit.

“In light of the declines in the prices of energy and other commodities and the weaker prospects for economic activity, the Committee expects inflation to moderate in coming quarters to levels consistent with price stability.

“Recent policy actions, including today’s rate reduction, coordinated interest rate cuts by central banks, extraordinary liquidity measures, and official steps to strengthen financial systems, should help over time to improve credit conditions and promote a return to moderate economic growth,” the Fed said. “Nevertheless, downside risks to growth remain. The Committee will monitor economic and financial developments carefully and will act as needed to promote sustainable economic growth and price stability.”

To read the full story, please click the Percent (%) image above. (Information provided by the California Association of Realtors)

FED STIFFENS RESTRICTIONS ON MORTGAGE LENDERS

The Federal Reserve is clamping down on what it called “deceptive acts and practices” by some mortgage lenders that it says helped lead to the sub-prime mortgage crisis. The new rules, which apply to all banks and other lenders and specifically target sub-prime loans and borrowers, will take effect Oct. 1.

KEEP THIS IN MIND…

• The new rules “are intended to protect consumers from unfair or deceptive acts and practices in mortgage lending, while keeping credit available to qualified borrowers and supporting sustainable home ownership,” said Federal Reserve Chairman Ben Bernanke.
• The new rules will prohibit loans to borrowers who can’t repay the loan from income and assets other than the home’s value and will require lenders to verify the borrower’s income and assets. Prepayment penalties are banned for the first four years of any adjustable rate sub-prime loan and for the first two years on other sub-prime loans. Lenders also must establish escrow accounts for property taxes and insurance for all first lien loans.
• Also banned are seven misleading advertising practices, including use of the word “fixed” to describe a rate or payment that changes at any time during the loan term. Other prohibited practices include loan comparison advertising (unless all payments and rates are disclosed), foreign-language ads where disclosures are presented in English, and encouraging appraisers to misrepresent a home’s value. The rules also will require lenders to credit payments on the date of receipt, prohibit pyramiding of loans, and require a good faith estimate of costs and payments on any loan application for a home secured by its value (including home equity loans and refinancing) within three days. Further, borrowers cannot be charged any fees other than to obtain a credit report before receiving that estimate.

To read the full story, please click the Mortgage Picture above. (Information provided by the California Association of Realtors)