For the first time in more than four years, the Federal Reserve cut its Fed Funds Rate, which directly impacts millions of American borrowers. And while this important decision has many implications, there is still some debate among experts about what this means to the economy as a whole.  This move rallied Wall Street and underscores the importance of home financing and the critical need to return liquidity to the market.  It also reinforces Countrywide's mission to preserve access to credit for millions of borrowers, and it will provide homeownership opportunities for more and more Americans.  However, Fed Funds Rate cuts do not translate into cuts in fixed-rate mortgages. In January 2001, the Fed Funds Rate was at 6% and 30-year fixed rates averaged 7.03%. By December 2001, following 4.25% in cuts throughout the year, home loan rates were actually up to 7.07% (See Chart at the bottom).  Yes, we may experience some temporary improvements in rates in the coming weeks, but the markets will remain volatile as long as inflation and recession are a possible threat to the Federal Reserve's long-term economic policies.

House and Senate move FHA reform legislation

Today, the Senate Banking Committee approved legislation, Federal Housing Administration Modernization Act of 2007 (no bill number yet), that will now go to the Senate floor that would revamp the Federal Housing Administration's mortgage insurance program. This follows on the heels of action yesterday by the full House of Representatives which debated H.R. 1852, the Expanding American Homeownership Act of 2007, and eventually passed with a number of amendments by a vote of 348-72. The Senate measure would increase FHA loan limits, currently at $362,000, to levels similar to government-sponsored enterprises Fannie Mae and Freddie Mac, which currently are at $417,000. The House bill would raise them even more to 125 percent of an area's median home price and give the HUD secretary the discretion to bump up that level by $100,000 during periods of crisis in the home-mortgage market. The Senate measure also would lower the down payment requirement to 1.5 percent from the current 3 percent. The House bill would allow no down payment in some cases. Both bills would lift the cap on FHA reverse mortgages, though the House bill would siphon the profits from the change to finance a new affordable housing trust fund. 

I hope to have a side-by-side of these bills available in the next couple days. With these actions, I believe prospects for FHA reform are better than ever. One key question, however, is if the loan limit will increase as much as the House legislation envisions. A smaller increase is much more likely especially since the Bush administration issued a Statement of Administration Policy objecting to the loan limit amendment adopted in the House.