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Fed Rate Cut Does Little For Homeowners In US

Mar 30, 2008
The interest rate cut of three-quarters of a percentage point by the Federal reserve yesterday, was part of another attempt to hold up the financial institutions on Wall Street from further speculation worries. The stock market took some confidence from the move and posted the largest one day gain on the Dow Jones index for quite some time. But as far as struggling home-owners are concerned, the rate cut has done little to ease pressure on their burden. In fact, by cutting interest rates and further weakening the dollar, the Fed had invited higher oil prices, increasing energy and transport costs at a time when most households are already feeling the pinch.

The cut in interest rates, which is the third in as many weeks, follows the demise of Bear Stearns, who were eventually bailed out and purchased by market giants JP Morgan for the poultry sum of $2 a share. Bear Stearns, who had been trading a year ago at nearly $150 dollars a share, fell victim to a run on their shares following rumours over their exposure to the sub-prime mortgage market and the extent of the losses they may have suffered because of it.

The only positives to come from this story are that the Federal Reserve was able to move quickly to back the takeover, helping to minimize the damage caused by the loss of confidence in the general banking sector. The negatives however, which will affect more on the average American worker through the resulting imported inflation that the lower dollar will bring, seems to reflect more on the political view of the current administration, who will bend over backwards to prop up the corporations at the expense of the man in the street.

And when your stoic republican commentator points towards the tax rebate that is about to be delivered to every household as an indication of what the government is doing for the average American in this time of need, don't be fooled. The maximum $800 dollars rebate is more of a cynical move to help prop up the employment market before a presidential election than it is designed to combat higher gas, food and energy costs.

If the administration wanted to do more to help those affected by the current mortgage crisis they could start by suspending the ability of the banks to foreclose on homeowners by auto-computer programs. A large problem with the mortgage lenders at the moment is that they have out-sourced their administration to companies who are ill equipped or poorly trained to deal with the problems that are arising. These outsourcing companies never foresaw the numbers of cases that they would be dealing with and computerized most of their procedures to cut costs. What has resulted is computerized foreclosure, without consultation and where consultation occurs, it may already be too late to achieve a positive result.

If each case was required to be reviewed independently, it could be determined whether it was sold incorrectly to begin with and where possible it could be re-written so that those home-owners who were never going to be able to afford the true cost and were effectively swindled, could refinance under terms they may allow them to keep their home. This would, of course, create a back-up of cases, but this effective delay in foreclosing on peoples homes maybe the delay required to unravel the truths behind the companies that made billions of dollars profit from those who could least afford it.

If recent comment in Congress are anything to go by, then supposedly, the likes of Countrywide Financial did nothing wrong legally, in selling expensive financial products to the people least likely to be able to understand them, let alone afford them. Maybe Congress should spend its time more wisely in making laws making sure this type of mis-selling is illegal in the future.
About the Author
Neil Ebsworth is the founder of AMLASpain, the MLS for properties in Spain and with a home for sale in Mount Pleasant South Carolina real estate in the US is a keen observer of US Real Estate trends
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