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 September 22, 2007

Federal Reserve Board's Half-Point Cut to Help Home Buyers
The Federal Reserve Board trimmed a 1/2 percentage point off of the federal funds rate, lowering it from 5.25% to 4.75%.
The discount rate was cut by the same amount, lowering it to 5.25%.

Some economists say these cuts could prove to be a mixed blessing for homebuyers by pushing fixed-rate mortgages higher if worries regarding inflation increase.

Consumers could feel relief in other ways. They could start seeing reduced payments on home-equity lines of credit, credit cards and some types of home loans.

Borrowers holding ARMs will likely not see immediate relief because these types of loans are tied to the London interbank offered rate (LIBOR). LIBOR recently leaped sharply above the Federal funds rate due to the continuing credit crunch in the markets.

James Bianco, president of Bianco Research LLC, of Chicago states that if LIBOR does not come down, there will likely be no relief for many mortgage borrowers.

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