The biggest news today is that the Fed has issued an emergency rate cut — the biggest cut since 1982. Today, in response to a stock market that plunged dramatically yesterday, and in response to worries of an even bigger plunge today, the Federal Reserve made a 75 basis point cut, more than a week ahead of its scheduled meeting for the end of the month. Bloomberg reports on the emergency Fed rate cut:

“Broader financial market conditions have continued to deteriorate and credit has tightened further for some businesses and households,” the Fed said in a statement in Washington. The FOMC took the action “in view of a weakening of the economic outlook and increasing downside risks to growth.”

Policy makers set aside concerns about inflation to lower borrowing costs for the fourth time since September after the unemployment rate hit a two-year high and stocks slumped. Chairman Ben S. Bernanke shifted the Fed’s stance to a more- aggressive approach in remarks this month citing a need for “decisive and timely” action.

While a Fed rate cut doesn’t normally have a big impact on mortgage rates, one of this magnitude may cause an interest rate cut for mortgages. As far as the stock market is concerned, the move cushioned the blow this morning, but volatility is expected, and some feel that the rate cut, dramatic as it is, may not be able to prevent a recession.

Tags: financial news, emergency fed rate cut, home mortgage loan, mortgage blog,
mortgage rates, lower mortgage rates, stock market

On Friday, President Bush unveiled an economic plan that focuses almost entirely on tax rebates and incentives. However, some are upset that the Bush economic plan fails to push any new housing initiative. The National Association of Realtors is especially disappointed over his failure to recommend a change to conforming loan limits. Inman News reports on the Bush economic plan:

A $150 billion economic stimulus package unveiled by President Bush Friday doesn’t address a top priority of the National Association of Realtors — raising the $417,000 conforming loan limit to allow Fannie Mae and Freddie Mac to purchase “jumbo” loans. …

Although the president today renewed his calls for Congress to pass legislation modernizing Federal Housing Administration loan guarantee programs, he announced no new initiatives specifically targeted at reviving housing markets or mortgage lending.

NAR, among others, believe that raising the conforming loan limits will help stimulate depressed real estate markets in various areas of the country. Raising the limit from $417,000 to $625,000 in high-priced areas such as Hawaii, New York, California and others will help market liquidity, they argue.

The focus was instead on tax incentives that may help increase spending by American consumers, but would be unlikely to help in terms of preventing foreclosures and improving the real estate market. Despite the lack of housing initiative in the Bush economic plan, there are measures underway in Congress. The House has already passed a bill raiding the conforming loan limits, and it is part of a current Senate debate, reports Inman:

HR 1427 would give Fannie and Freddie the power to guarantee and securitize loans of up to $625,000 in high-cost housing markets, but not hold them in their own investment portfolios. New York Democrat Sen. Charles Schumer introduced a bill in September, S 2036, that would create a one-year window for the GSEs to purchase such loans to hold in their portfolios.

Tags: Bush economic plan, mortgage blog, home mortgage loan, foreclosures,
tax incentives, conforming loan limits, housing initiative

President Bush is expected to share his economic plan today. The main speculation is that this plan will involve some sort of a tax rebate. CNN Money reports on what one cabinet member — Secretary of the Treasury Henry Paulson — has to say about the expected Bush economic plan:

“What he believes is that we’ve got to do something that is robust. It’s going to be temporary and get money into the economy quickly,” Treasury Secretary Henry Paulson said Friday on CBS’s “The Early Show.” “It’s going to be focused on consumers, individuals, families — putting money in their pocket. And it’s going to be focused on giving businesses the incentive to hire people, to create jobs.”

This is, of course, one of my biggest gripes with the economy and attempts to fix it: That it is too focused on consumers. The idea is not to actually “put money in their pocket,” but rather give consumers money that the government hopes they’ll spend.

An economic stimulus package will be focused on trying to get people to stop saving money against a recession and to start spending it. Instead of focusing on redefining goals for a robust long-term economy, any economic stimulus package will focus on the short-term, and boosting “confidence” in customers so that they will spend more money. Experience says that when someone gets $500 “free money” to spend, they will spend much more than that.

Tags: Bush economic plan, fix economy, mortgage loan, mortgage blog,
economic stimulus package, economy blog