Fed Cuts Discount Rate to slow down subprime lending crisis

Looks like some relief is finally arriving for the mortgage market. The following has been taken from a recent news article on this subject. See the entire article @ http://bloomberg.com/apps/news?pid=20601087&sid=aE1A7RkmKsag&refer=home

The Fed, in a surprise announcement in Washington, cut the so-called discount rate yesterday by 0.5 percentage point, to 5.75 percent. Policy makers dropped language indicating their bias toward fighting inflation, and instead highlighted a rising threat to economic growth.

The Fed's action reflects alarm that more restrictive lending and market volatility will deepen the housing recession and weaken employment.As recently as the Aug. 7 meeting, the FOMC said inflation was still the biggest danger to the economy. Yesterday's statement, approved unanimously by 10 Fed governors and presidents, didn't mention inflation.

Bernanke and his colleagues changed tack as losses mounted on subprime securities and concern spread that major lenders would be harmed. The collapse in demand for securities backed by subprime mortgages has forced at least 90 lenders out of business.

Mortgage defaults by Americans with poor credit histories prompted the collapse in June of two hedge funds managed by Bear Stearns Cos. and triggered a worldwide rout in the debt markets. Companies such as London-based Cadbury Schweppes Plc have delayed asset sales, and banks including JPMorgan Chase & Co. and Deutsche Bank AG have been left on the hook for as much as $300 billion of debt they've agreed to provide.

Note: The federal reserves actions do not directly impact fixed mortgage rates however, HELOC's & other sources of variable rate consumer debt may benefit from rate reductions. Fixed rates generally benefit from low inflation rates as the long term yield of (mortgage) bonds remain higher for investors.