BlogArizona Category: Taxes & FinancesThis page contains all BlogArizona posts related to Taxes & Finances. Read a specific post by clicking on a title below, or scroll further down the page to read through all posts in this category.Saturday, March 08, 2008Recent Changes to the FHA Loan ProgramIt seems like the FHA Loan program is being looked to by government leaders, consumers, lenders and anyone in between to save the housing market. As a result there has been a lot of changes to this program within the past few months. 1. FHA Loan Limits Increased: The loan limit has been raised across the entire country. For Maricopa and Pinal County (which includes all the major cities in the Phoenix Metro area) the new limits are as follows:
2. Down payment Assistance Programs: While this is not a direct FHA feature, one of the major reasons to use the FHA program is because it allows third-parties to contribute towards a buyer’s down payment. The FHA loan limit is 97% of the value of the property but it allows the remaining 3% to be gifted from such non-profits as AmeriDream, Nehemiah etc. Recently HUD (which oversees FHA) challenged the legality of such gifts and threatened to shut them down. The down-payment programs fought back and recently won in court. 3. FHA Secure: This was an initiate from the White House designed to help subprime borrowers refinance into a FHA loan program. It is targeted to those on adjustable rate mortgages facing abrupt increases to their monthly housing payment. The HUD website has addition information, but here are some high points on how you may qualify for FHASecure:
There are further changes coming to the FHA program. Congress is working on a FHA Modernization bill which will decrease the down payment requirement but add risk based insurance (higher insurance for lower credit scores). So, stay tuned, nothing stays the same in today’s mortgage market.
Posted by Shailesh Ghimire, AZ Mortgage Guru on March 8, 2008 | Permalink | Comments (2) | TrackBack Monday, February 25, 2008AZ Home Inspector Licensing Board going away?Arizona Home Inspectors need your help! Arizona's home inspector licensing agency, the AZ Board of Technical Registration (BTR) is inefficient, expensive and allegedly corrupt. In fact, Arizona lawmakers are thinking about eliminating the BTR altogether (SB1171), and moving home inspector licensing to the Registrar of Contractors (ROC). As most of my readers already know, I'm co-owner of Homewerx Home Inspections, one of the Valley's leading home inspection companies since 1999. As such, I sincerely appreciate your support on this matter. While I do NOT support eliminating the BTR, it definitely needs some change - starting at the top with the guy in charge. It's unfortunate, but AZ home inspector licensing seems to be alot more about money and power and industry organizations than it is about quality home inspections. There are some real problems and conflicts of interest that have just been ignored at the BTR, and we all know that problems don't just go away when they're ignored...they get worse! Now, the BTR is so inefficient and lacking accountability that I think the whole idea of protecting homebuyers got lost somewhere along the line. Home Inspectors don't trust the BTR, consumers kind of laugh at them. And the cost of inefficient government regulation is real... look at how much it costs to be a home inspector in Arizona compared to other professionals licensed by the same agency. And look at how much Arizona home inspectors pay compared to home inspectors in other states. "Wow" is all I can say! Home Inspection companies inevitably pass these ridiculous costs onto the homebuying consumer, who is already strapped for cash in case the BTR hasn't heard. And a home inspection is an out-of-pocket expense - those are the ones that really hurt and will be a deal-breaker alot quicker than borrowed money will. So please Help support the 'little guy', and you will help keep Arizona home inspection prices down plus eliminate government incompetence at the same time. Thank you again for your support!
Posted by Shannon Hubbard, Arizona Real Estate Agent on February 25, 2008 | Permalink | Comments (2) | TrackBack Tuesday, January 22, 2008Subprime Mortgage Problem Goes Global: Federal Reserve Makes 'Emergency' Interest Rate CutBen Bernanke and the Federal Reserve made an 'emergency' rate cut to the key interest rate this morning, rather than waiting until their next planned meeting at the end of January. The .75 basis point reduction in interest rates comes amid global economic fears. The Asian markets have been down sharply in recent days, and European markets have followed (although they're not down as much as the Asian markets). The fear is that America's subprime mortgage problem is now damaging the global economy. Fortunately, the US stock markets were not trading yesterday due to the Martin Luther King holiday. But DOW futures were down over 500 points until the announcement of the Fed's rate cut early this morning. The DOW (futures) has since recovered by a couple hundred points, but it still looks like today will be a bad day for the stock market (which is already down for the year). I guess we'll see when the markets open in a few minutes. Just remember, it's only a paper loss until you cash out!
Posted by Shannon Hubbard, Arizona Real Estate Agent on January 22, 2008 | Permalink | Comments (6) | TrackBack Wednesday, December 12, 2007Fed Lowers Interest Rates Again - Investors UpsetThe Federal Reserve met yesterday and lowered its benchmark interest rate again, in hopes of alleviating some of the economic pain caused by the current mortgage crisis and slow housing market. The federal funds rate was lowered by a quarter point (to 4.25%), and the discount rate was also cut by a quarter point (to 4.75%). The discount rate is the cost of direct loans from the central bank. The federal funds rate is now at its lowest level since January 2006. But apparently the rate cut was not enough to satisfy some Wall Street investors. Since most stock market investors had hoped for a .50% rate cut, many were disappointed by the .25% rate cut. As a result, the Dow Jones dropped about 300 points after the rate cut was announced. Today however, investors seem to have gotten over it since the Dow, NASDAQ and S&P500 are all up quite a bit (so far). Perhaps investors are comforted by the fact that the Fed also indicated a willingness to make additional future rate cuts if necessary. I think Bernanke is just being cautious after seeing his predecessor, Alan Greenspan, criticized for dropping rates too much, too fast. Besides, the most immediate positive effect of a rate cut is not lower mortgage rates, it's the boost it gives to consumer confidence. Therefore, maybe making smaller rate cuts more frequently is a better strategy than making bigger rate cuts all at once. Only time will tell!
Related articles: Posted by Shannon Hubbard, Arizona Real Estate Agent on December 12, 2007 | Permalink | Comments (2) | TrackBack Friday, December 07, 2007Subprime Mortgage Interest Rate Freeze - Private Sector Solution or Government Bailout?Yesterday, President Bush announced a plan to address the current mortgage crisis. The plan, which includes a 5-year freeze on certain subprime mortgage interest rates, was a result of the Hope Now Alliance. According to the President, "Hope Now is an example of government bringing together members of the private sector to voluntarily address a national challenge without government subsidies and without government mandates". The freeze is not a government mandate - it's an agreement by many mortgage industry leaders to freeze the interest rates on certain subprime mortgages for 5 years. The hope is that during those 5 years, real estate sales and values will increase allowing these borrowers to sell or refinance their homes. Not all mortgage companies are onboard, but many of the major players in the industry are involved. And not all distressed borrowers will benefit from the program. In order to qualify, the borrower must meet the following minimum criteria:
But there's more to the plan than just a subprime rate freeze for a few lucky borrowers. Bush also announced:
Many criticize the President's plan as a "bailout", but the President insists his plan is a private-sector solution. I agree this freeze on interest rates is not a government bailout. And although I'm a real estate agent, I can even applaud the idea of tighter lending standards and a more transparent mortgage industry (but personally I think the 20+ pages of disclosures already given to borrowers is quite sufficient as long as they read them - and adding more disclosures would probably make borrowers even LESS likely to read the fine print). But the FHA Secure program has me totally baffled. I just don't get how helping (risky) borrowers to refinance loans they couldn't afford to begin with is going to help anybody...except the subprime lenders who get to pass these risky loans off to the taxpayers. You see, when these loans get refinanced as FHA loans, they'll be government insured and then the taxpayers will eat the losses when these borrowers foreclose. And many of these borrowers will foreclose eventually - FHA Secure will simply prolong the agony and shift the financial burden of these foreclosures from the subprime lender, to the American taxpayer. I'm especially confused by the idea that FHA Secure is supposed to "enable FHA to be more flexible in how to offset the refinancing". So in other words, our government is planning to help these borrowers by using the very same type of "creative financing" that got these borrowers into trouble in the first place? At least the lenders who originally made these risky loans stood some chance of making a profit. But what do American taxpayers get in return for guaranteeing these risky loans? We get nothing, except possibly higher taxes to pay for the bureaucracy and resulting foreclosures. As far as "reforming FHA" goes, does that mean changing the rules so the government can guarantee even more risky loans? I can definitely agree that maximum FHA loan amounts need to be modernized after the recent run up of real estate prices, but I'm very skeptical of other potential FHA reforms. I also totally disagree that these borrowers who get out of paying part of their mortgage should also get out of paying taxes on the forgiven amounts. If someone gives you free money, the least you can do is pay the taxes on it. If nothing else, these borrowers should be paying a fee to the government for negotiating them such a good deal. And if these borrowers who benefit from the plan are getting tax breaks, who's going to pay for the cost of this mess? Should the 98.5% of American homeowners who are NOT in foreclosure be the ones to pay? Life is not fair, and we have to take the good with the bad. So I guess the term, "lesser of two evils" comes to mind here. I don't feel it's the government's responsibility to help homeowners escape loan payments they agreed to pay, nor is it the government's job to help homeowners keep real estate they can't afford. But I also don't believe in cutting off my nose to spite my face. If the problem is ignored, the mortgage fallout and its affects on both real estate and Wall Street could put the entire U.S. economy into a recession. Obviously, then we would all suffer. I'm generally leery of any government interference in the free market, but the President has negotiated a voluntary plan with leaders of the mortgage industry who realize it's better to get paid less interest on a loan, than to have the loan foreclose and get nothing at all. Quite frankly, I haven't heard any better ideas and while I disagree with parts of the plan, I'm optimistic it will help some borrowers. But more importantly, I think it will improve consumer confidence in both the mortgage industry and the real estate market. The President acknowledges "there is no perfect solution" to the mortgage problem, and this problem will require a multi-faceted solution. I definitely give the President credit for taking action and attempting to resolve the subprime meltdown, especially during this extremely political season when President Bush is being attacked from every direction, for everything he does or says. On a lighter note, when announcing this plan, the President accidentally gave out the wrong phone number for the mortgage help hotline - he even repeated the wrong number twice! You gotta love a guy who has good intentions, but constantly gets tripped up on the little details! The incorrect phone number announced by the President actually belongs to the Freedom Christian Academy in Texas, who were apparently good sports about the mix up! Hopefully, BlogArizona readers don't need to call the mortgage help hotline, but just in case, the correct number is 1-888-995-HOPE.
Related article from August 31, 2007: "President Says Reform FHA & Fannie Mae - Is there a Mortgage Bailout Coming?" Posted by Shannon Hubbard, Arizona Real Estate Agent on December 7, 2007 | Permalink | Comments (4) | TrackBack Tuesday, October 30, 2007Low Interest Rates + Lower Prices + High Inventory = Time to Buy Arizona Real EstateMany are waiting with anticipation as the Federal Reserve meets (today and tomorrow) to discuss a A lower Federal funds rate won't immediately affect mortgage rates, but it will (almost) immediately boost consumer confidence, and eventually it will lower mortgage rates. Those homeowners with Adjustable Rate Mortgages (ARMs) will get some relief as their interest rates adjust, hopefully preventing some foreclosures. We're nearing the bottom of a slow real estate market, with high inventory (supply) and lower than normal demand. While some people are scared by the current real estate market, it's actually an incredible buyer's market with great deals just waiting to be made. If you're thinking of buying real estate, the rest of this year is going to be perfect buying time - crazy deals and incentives are being offered. After mortgage interest rates have decreased and the real estate market begins its recovery is NOT the time you can make your best deals. If you're buying for the long term (3 or more years), you really don't need to worry about buying at the very bottom of the market. But you do want to buy before the market starts to recover since that's when the best deals can be negotiated. The real estate market is cyclic - it goes up and down. Here's why you should buy real estate before the market starts to recover (I stole this explanation from my friend and fellow Arizona Realtor, David Thomas, who read it on a blog!). Think of the real estate market as a "V", the current trend is definitely downward, toward the bottom of the "V". We don't know exactly how close we are to the bottom of the "V" right now, but most think we're pretty close. As we approach the bottom, inventory is at its highest and sellers are most willing to negotiate. But once the market reaches the bottom and the upward trend begins, deals begin to diminish. Inventory (choice) decreases, prices begin to increase and incentives go away. As the market recovers, interest rates are also likely to increase which will make it even more expensive to buy a home. So when do you want to buy - near (but before) the bottom? Or do you try to wait until the very bottom and take a chance that you'll catch the upward trend instead? It's impossible to know exactly where the bottom of that trend is, until after the upward trend begins. So if you wait, you might wait too long. By the way, don't believe anybody that claims to know exactly where the bottom of that "V" is!
Posted by Shannon Hubbard, Arizona Real Estate Agent on October 30, 2007 | Permalink | Comments (4) | TrackBack Friday, August 31, 2007President Says Reform FHA & Fannie Mae - Is there a Mortgage Bailout Coming?Most investors and analysts have been predicting the Fed will lower interest rates next week in an effort to revive the mortgage and housing sectors. But this morning, some of those hopes faded a little as President Bush announced his plan to deal with the current mortgage crisis. And now, some investors are worried the Fed may not lower interest rates as most were expecting, or may not lower rates as much. The President didn't really give many details and he didn't take any questions about his plan. He did say that his solution includes reforming FHA, Fannie Mae, etc, thus making it easier for borrowers who are in trouble to re-finance their mortgages. But wait just a minute...isn't that what got us into this mess - easy loans for people who really can't afford them? And assuming the President can get his plan passed through Congress, I really don't understand how reforming FHA will help subprime lenders and borrowers. In fact, this 'FHA reform' isn't really in response to the mortgage crisis at all. This FHA reform is actually something the President started pushing for over a year ago. The President also mentioned making the mortgage industry more transparent in order to prevent future problems. I agree that borrowers should be informed and understand the terms of their loan before signing on the dotted line. But I don't totally buy into the victim mentality. While there's plenty of sleazy mortgage companies out there taking advantage of the proverbial 'little guy', I think the little guy has to take some responsibility too. If your loan officer asks you to sign an application that says your income is twice what it really is, and you sign it because he says nobody's going to check and it's the only way you'll be approved for the loan, yes the lender is wrong. But so is the borrower. And both the lender and the borrower should suffer the consequences for their bad decisions. That suffering is what will teach them both NOT to make the same bad decision again. In the absence of consequences, neither will change their behavior in the future. While I don't believe there should be a bailout for the greedy mortgage company when this borrower defaults, I don't believe there should be a bailout for the borrower who lied either. While there are truly some borrowers who didn't understand the terms of their mortgage, they shouldn't have signed something they didn't understand. It may be a tough lesson, but it's one that needs to be learned. Yes, it's nice to have someone else to blame and it's always easy to blame big business. But it's ultimately my responsibility to decide how much house I can afford. And if I get in over my head, I have nobody to blame but myself. By the way, 98.7% of American homes are NOT in foreclosure right now. So why should 98.7% of us have to pay to bail out the 1.3% who made bad decisions? As an American who makes a living in the real estate industry, I definitely want to support the President in any effort he makes to improve the housing market. But helping those in trouble to re-finance loans they couldn't afford to begin with just seems silly to me. I personally think it's more likely to prolong the agony than to resolve any problems. READ UPDATE to "President Says Reform FHA & Fannie Mae - Is there a Mortgage Bailout Coming?"
Posted by Shannon Hubbard, Arizona Real Estate Agent on August 31, 2007 | Permalink | Comments (7) | TrackBack Friday, August 17, 2007Sub-Prime Mortgage Crisis Causes Fed to Lower Discount Rate
As a Realtor®, lower interest rates would obviously make me happy. Lower rates will decrease a buyer's monthly mortgage payment, therefore enabling more people to qualify and buy real estate. But will lower interest rates really help solve the mortgage problem, or will it just create more inflationary worries? And as mortgage companies tighten lending standards, will new buyers who qualify due to lower interest rates even be enough to offset those buyers who no longer qualify due to tighter lending requirements? It's not that lenders don't want to lend - trust me, they WANT to make loans available. But the loans have to meet certain requirements or the mortgage company cannot sell them and free up money to lend to the next borrower. So mortgage lenders are faced with a choice:
As more and more of these risky loans go into default, there are less people willing to buy them. Investors are pretty scared right now, as indicated by the big sell-offs on Wall Street over the past few weeks. While there are definitely reasons to be concerned, I personally feel the media attention has made this problem out to be much worse than it really is. If you believe what you hear on TV and read in the newspaper, mortgage companies are closing their doors. Some really are, but it's still possible for someone with good credit and good income to get a mortgage (and shouldn't good credit and good income have been a requirement all along, really?). But don't expect to find the 100% financing and 103% financing of years past. If you plan to apply for a mortgage anytime soon, start saving now because you'll likely be expected to make a significant downpayment. You'll also probably be expected to document your income. Why? Because people with good credit, good income and a large down payment invested DON'T generally walk away from their house/mortgage when things get tough. On the other hand, people who put no money down and have so-so credit have very little to lose, and therefore can walk away from their home (and their mortgage debt) as if they were renters. In the short-term, stricter yet common sense lending requirements will cause panic and fear, and yes, fewer people will qualify for a mortgage. But in the long run, stricter requirements will help make for a more stable lending environment, and ultimately a more stable real estate market.
Posted by Shannon Hubbard, Arizona Real Estate Agent on August 17, 2007 | Permalink | Comments (2) | TrackBack Thursday, August 09, 2007The Brave New World of Home MortgagesAfter one of the nation's largest home mortgage originator went out of business last week, I started to think of ways borrowers might be able to navigate this brave new world. Essentially the too good to be true mortgages from back in 2004 and 2005 appear to be riskier than everyone thought. Surprise, surprise! In the brave new world we will be living in, “bad credit, no credit, no problem” ads will simply not be heard. The party is over and it’s back to old school. Here is what I mean: If it sounds too good, it probably is. What I mean by this is that if a lender promises a lower than market interest rate with no income and asset verification then that lender is basically lying. Run. What used to be called stated income loans are now very difficult to obtain and not many lenders offer them anymore. Same goes for the no ratio and no documentation loans. 80/20 what? The days of 100% financing at very competitive rates may be over, at least for a while. There are still programs available but it’s harder to qualify and the rates are much higher. You might as well save some money and use it to get a better interest rate. Some money down will be a lot better than no money down. Good credit premium. As I said before, the days of “bad credit, no credit, no problem” are over. You will need good credit to get a good loan. The surest way to make sure you’re able to obtain a mortgage product you can live with for a long time is to make sure your credit is in good shape. Follow the seven easy steps to destroying your credit (of course do the opposite) and you’ll be in a good position to buy. What the market shakeout means for everyone is that lenders will be returning to an old fashioned model of lending. You will need to establish a solid work history with stable income for a reasonable time period. Your credit needs to be in good shape and ideally you’ll need to put some money down. No down will still be available through FHA and certain Fannie Mae and Freddie Mac programs but if you can’t establish income and employment then you’re out of luck. The brave new world kind of looks a lot like the past doesn’t it?
Posted by Shailesh Ghimire, AZ Mortgage Guru on August 9, 2007 | Permalink | Comments (2) | TrackBack Monday, August 06, 2007Homebuyers & Investors Hope for Interest Rate DecreaseThe Federal Reserve is meeting again, and will announce tomorrow whether short-term interest rates are going up, going down or staying the same. Most investors and analysts are expecting interest rates to stay the same, and many are even hoping for a small decrease. Although we're talking about short-term interest rates, any increase or decrease will eventually affect mortgage and other long-term interest rates as well. The Federal Reserve has recently increased interest rates several times in an attempt to slow the economy and control inflation. Many investors now say that core inflation is under control after dipping to 2 percent in April - because Federal Reserve Chairman Ben Bernanke and others have identified the 1-2% range as their core inflation 'comfort zone'. However, core inflation doesn't take into account the cost of food and fuel, both of which have been rising more than falling in past years. Therefore, some are saying that inflation is not as 'under control' as the core inflation numbers indicate. Interest rates might even be decreased if the Fed thinks our slow housing market and recent credit crunch are bigger concerns than inflationary worries. But most believe a decrease in interest rates is unlikely, and that rates will remain unchanged. An increase in interest rates is also unlikely, as tighter lending standards due to subprime mortgage problems are already having negative effects both on a slower than normal housing market, and on Wall Street's bottom line.
Posted by Shannon Hubbard, Arizona Real Estate Agent on August 6, 2007 | Permalink | Comments (3) | TrackBack Thursday, June 07, 2007Homecomings Funding Uses Deceptive Practices to Obtain Mortgage Refinance ClientsI received another one of Homecomings Funding's deceptive phone calls a few days ago (be sure to also read my first article about this sleazy mortgage company). This last call was almost the exact same wording as the first message - clearly Homecomings gives their employees a script to make these calls. To me, that means it's the company, not just a bad employee, that is being deceitful. Although I do NOT have a mortgage with Homecomings, here is the message I received:
I didn't even bother to return the 2nd call since I knew they were just trying to trick me into calling so they could talk me into refinancing my house. It doesn't seem to matter to this company that:
So whether you're buying a house, land, commercial property or just refinancing your current mortgage, DON'T TRUST HOMECOMINGS!
Posted by Shannon Hubbard, Arizona Real Estate Agent on June 7, 2007 | Permalink | Comments (4) | TrackBack Tuesday, June 05, 2007Seller Financing: Should you do it?In today’s buyer’s market, I’ve seen an increasing number of transactions with seller financing, or seller carryback as it is known in the mortgage world. A seller carryback can help with selling your home faster if you have sufficient equity in your home. It can also help you with your cash flow and be a creative mechanism for you to earn a better return on your home equity. A seller carryback is where the seller offers existing equity as a “loan” to the buyer. The buyer still has to obtain a mortgage for a certain portion of the purchase price and may be required to put some money down. For example in a recent transaction the buyer obtained a 80% first mortgage, a 10% second in the form of a seller carryback and 10% down from the buyers funds. This transaction went very smoothly and both parties are set to gain from this arrangement. Remember that as the seller you get to decide the terms of the seller carryback. In general you need to specify the interest rate, monthly payment, payment terms and the length of the note. You can hold this as a note or as a deed of trust against the property. I would recommend holding it as a deed of trust. You will need to close this through a title company during the close of escrow. On the cautionary side as a seller be sure you do your homework on the borrower. Preferably you should obtain the borrowers permission to view their credit report, ask for references and also speak with the lender of the first mortgage. Finally, be very clear on when the loan needs to be paid off and how payments are to be received. If you work with a qualified Real Estate agent then you should have no problems with closing this transaction and you’ll be on your way to increasing your home’s equity in a very short period of time.
Posted by Shailesh Ghimire, AZ Mortgage Guru on June 5, 2007 | Permalink | Comments (1) | TrackBack Thursday, May 24, 2007AZ Appraisals Still Coming in Too Low for SellersAs Arizona home sellers continue to overprice their homes, appraisers continue to force them back into reality. Over the past several months, I've seen numerous AZ real estate contracts canceled due to the appraisal. And by looking at the prices of current listings, I'd say there will be many more deals blown by the appraiser if sellers don't start getting real about home prices. To demonstrate how truly delusional some sellers (and real estate agents) really are, I looked at the houses currently for sale in my Mesa neighborhood. I compared prices on the most popular floorplan (between 2500-3000 square feet). There are currently 6 of these homes for sale - all have about the same lot size and very similar features. I would price these homes at about $185/square foot plus or minus $10/square foot (depending on condition). There's one currently pending contract that's been listed at $173/square foot for 56 days, and there's one pending contract that's been listed at $210/square foot for 160 days, although they probably sold for less than list price. Of the 2 homes that are pending sale, the house listed at $210/square foot has a pool and is pretty nice, while the one listed at $173/square foot is not as nice and has a less desirable location within the neighborhood. The one listed at $173/square foot which went under contract quickly, by the way, is an Owner/Agent! With a complete disregard for recent comps which sold for $185-$190 per square foot, the 6 active listings are currently priced from $199/square foot all the way up to $243/square foot. Only one of these houses has a pool, and it's not the one priced at $243/square foot! I estimate the $243/square foot house is overpriced by about $150,000. It's been on the market 103 days so far, and I don't expect it to sell anytime soon. What could possibly make a person think their house is worth $150,000 more than the one down the street that's almost exactly like it? Even if that owner made $150,000 in upgrades, the house would not be worth $150,000 more (because there's such a thing as 'over-improving' your home). Even if you can find a buyer willing to pay a ridiculously high price for your house, you still have to convince the mortgage company of the home's value. Lenders determine how much they will lend based on the appraised value of the home. If that appraised value comes in lower than the purchase price, one of three things will usually happen:
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possible cut in interest rates. After lowering rates a half a point in September, the Fed is still concerned about the 'credit crunch' and a slower than normal housing market. However, with extremely high oil prices, the Fed is also concerned about inflation (which could prevent them from lowering interest rates). But most analysts think the slow housing market and lending problems are currently a bigger concern than inflation, and most are predicting a quarter (.25) point reduction in interest rates tomorrow.
The Federal Reserve just lowered its discount rate by a half a point to 5.25% after continuous bad news from the mortgage industry and Wall Street. The discount rate is the rate the Federal Reserve charges qualified lenders, usually banks, for temporary loans. This move is mostly symbolic, as the Fed did NOT lower the federal funds rate as many expect will happen in September, and perhaps again in October (the federal funds rate is the more closely watched 'interest rate' which affects credit cards, home equity lines of credit, car loans, other consumer loans and eventually mortgage rates). But obviously, the Fed is now MUCH more worried about the credit crunch than about inflation. What started as a subprime mortgage problem is now wreaking havoc on Wall Street and the economy as a whole.