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and WHOO! - big exhale. . . Rate cut coming. Who would have thought of that?

Chris Iverson, Realtor

January 10th, 2008 · No Comments

In not a big surprise to anyone, Ben Bernanke today stated that The Fed would cut interest rates further if the economy needs help. The markets rose a bit in response, with the Dow ending up 117 on the day. Of bigger news are rumors of a buyout of struggling Countrywide Financial by Bank of America.

Countrywide has been one of the lenders hardest hit by the recent spate of mortgage defaults and foreclosures nationwide this year, and the stock market has been dragged down with concerns over a potential bankruptcy at Countrywide.

“For the last month, rumors are that Countrywide was going into bankruptcy,” said Ryan Larson, senior trader at Voyageur Asset Management. “Any deal with Bank of America is good news, and the market is looking for even a hint of good news these days.” (read the entire article here).

Both of these tidbits are good news for homebuyers.

1) Lower interest rates at the Fed level will put additional downward pressure on mortgage rates which have sunk back to near historic lows.

2) More importantly, lower rates also reduce the amount that variable rate equity lines go up when they reset from promotional rates, reducing the risk of default for all those loans taken out in the last couple of years that haven’t reset yet. (These would be the other shoe we have been waiting to hear drop). Hopefully, this avoids the proverbial “last straw” that tips the national economy into recession.

3) If Countrywide survives this, either through acquisition or recovery, lenders and Wall Street, whom they resell packaged loans to, will breathe a bit easier about this “unfortunate occurance” passing and money will become cheaper and more freely available, making homes relatively more affordable for buyers, especially those with good credit and down payments of 20% or more.

So, with the Discount Rate currently at 4.25%, and some economists complaining that the Fed should be cutting more aggressively and the rate should be at 3%, I am gaining more respect for Alan Greenspan’s ability to keep the markets under his spell, and give guidance and speeches that left us understanding less what to expect after hearing him than before. Ben has a tough act to follow.

And now back to decoding Greenspan’s book: The Age of Turbulence: Adventures in a New World

Thanks for reading.

Tags: , alan greenspan, Ben Bernanke, economy, Fed Fund Rate, Federal Reserve, financial markets, FOMC, mortage,
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