News Alert: Fed cuts rates by .75 percent at unscheduled meeting
By Nicole Hall – LendingTree.com

The Federal Reserve Board slashed interest rates three-quarters percent on Tuesday, January 22 in an apparent reaction to weakening economic conditions and turmoil in global financial markets.

The emergency action was the largest unscheduled interest rate cut in over 20 years. The move lowered the target on a key short-term interest rate from 4.25 percent to 3.5 percent.

The decision was made ahead of the Fed’s regularly scheduled meeting to take place the week of January 28. “The Committee took this action in view of a weakening of the economic outlook and increasing downside risks to growth,” the Federal Open Market Committee said in a statement issued Tuesday, January 22.

Also in the statement, the Fed noted that “broader financial market conditions have continued to deteriorate and credit has tightened further for some businesses and households.”

What does the rate cut mean to borrowers?
The Federal Reserve’s decision to cut the federal funds rate impacts consumer costs for credit cards, home equity lines of credit and auto loans.

The federal funds rate influences the prime rate, which in turn can influence short term interest rates, such the rates on adjustable rate mortgages tied to the prime rate, home equity lines of credit, auto loans and credit card interest rates. Fixed-rate loans, which are tied to long-term interest rates like the 10-year Treasury note yield, are less likely to be immediately affected by the Fed decision, but tend to be indirectly impacted by the Fed’s action.

In summary, while the Fed does not directly control mortgage rates, it does have an indirect impact on borrowing rates, particularly with shorter term loans. With today’s rate cut, borrowers can look for credit card interest rates, auto loans and even some home loans to drop.

To find out if the interest rate cut could affect your loan payment, call 1 800 555-Tree or visit www.LendingTree.com.

New mortgage rules to protect borrowers
By Brenda Spiering – LendingTree.com

The Federal Reserve has proposed a new set of lending regulations designed to help protect borrowers. In an effort to tighten up some of the questionable lending practices that are being blamed for much of the current credit crunch, the Fed is calling for stricter guidelines for mortgage lenders.

The Fed’s proposal, made on December 18, is slated for approval after a 90-day period for public comment. And, while some finance industry officials have criticized the initiative for providing too little, too late, most view it as a step in the right direction.

To help prevent some of the problems associated with higher-priced subprime loans, the Fed wants the new rules to:

Prevent approvals based on low introductory rates. Lenders would no longer be allowed to grant subprime mortgages to those who only qualify for a temporary low initial interest rate. Instead, lenders would be required to ensure that borrowers taking out loans that are scheduled to eventually reset at a higher rate would also be able to meet these future, larger payments.

Require or encourage escrow accounts for subprime loans. In order to help borrowers stay on top of all of the payments required when owning a home, lenders would be required to start collecting property taxes and home insurance along with mortgage payments and holding them in escrow until they are due.

Restrict “stated income” subprime loans. To better ensure that homebuyers can truly afford the debt they’re taking on, lenders would no longer be allowed to provide mortgages without verifying a borrower’s income and assets.

Limit prepayment penalties. To provide subprime borrowers with the option of being able to refinance into a more affordable loan without being hit with stringent penalties, the Fed wants to restrict prepayment penalties and make sure that any such penalties expire 60 days prior to a loan resetting.

And, in the case of most mortgages, along with a few other general ethical guidelines, the new regulations propose to:

Require earlier disclosure forms. Recent studies found that many borrowers weren’t aware of all of the potential risks involved when they signed for non-conventional loans. The Fed wants lenders to be required to provide Truth-In-Lending mortgage disclosure forms to borrowers early enough to allow for review when shopping for a mortgage.

Have mortgage brokers disclose incentives. Some brokers earn a commission based upon selling customers a mortgage with a higher interest rate than they’d normally qualify for. Requiring that this be revealed to loan applicants could help prevent customers from being misled.

By promoting more responsible lending practices, the new rules may help protect borrowers in the future. However, it’s always important to make sure you fully understand the terms of any loan you are considering. You can find information to help you navigate the loan process in the LendingTree Smart Borrower Center.

New law seeks to lower college borrowing costs
Federal aid is increasing, but so are the costs of a four-year education.

There’s new good news and new bad news when it comes to paying for college. The good news is that a federal law passed by Congress in 2007, the College Cost Reduction Act, will increase the amount of aid available to many students.

The bad news? The average out-of-pocket cost to attend a four-year college education has gone up as well, even for students receiving aid.

The bottom line: The growing gap between scholarships and grants and college costs is forcing more families into the private loan market and increasing student debt loads after graduation. That makes shopping for the best student loan more important than ever.

Rising college costs
The College Board, a nonprofit association of schools that administers tests including the SAT, says college prices rose about 6 percent for the 2006-07 school year over the previous year, higher than the rate of inflation. Prices are up 35 percent over a five-year period, the Board said.

Tuition and fees at the average four-year public university were $5,836 in 2006-07, according to the October 2007 report. That was 6.3 percent higher than the previous year, 2.4 percent after adjusting for inflation. Adding room and board brought the bill for an in-state student to $12,976.

Private school costs were significantly higher, the report said. Tuition and fees in 2006-07 averaged $22,218 at four-year private colleges and universities, or 5.9 percent higher than the previous year. The inflation-adjusted increase was 2 percent, slightly below the rate of increase for public four-year schools. Room and board raised the bill to $30,367.

Financial aid is not keeping pace with tuition increases
Nearly two-thirds of full-time students at four-year schools receive grant aid, lowering their overall costs, according to the College Board report. Grants and tax benefits lowered the average total bill for students at public four-year schools to $2,700. But grant aid has not kept pace with the increase in average net prices since 2002-03, the report says. For private-school students, grants and tax benefits lowered the bill to $13,200.

Private loans represent a growing chunk of student loans, growing at an average annual rate of about 27 percent since 2000-01, according to a separate College Board report on student debt. One out of five student loan dollars in 2005-06 was from private lenders rather than through the federal government, the report said. Private loans totaled $17.3 billion in 2006.

New law seeks to lower the cost of student borrowing
The College Cost Reduction and Access Act signed into law by President Bush in September 2007 increases funding for federal Pell Grants by $11.4 billion over five years. The maximum annual grant increases from $4,310 in 2007 to $5,400 in 2012, according to the White House.

The Act also helps lower the cost of borrowing by gradually cutting interest rates in half on federally subsidized loans over the next five years, from 6.8 percent for loans made through July 1, 2008, to 3.4 percent for loans made from July 1, 2011, to July 1, 2012.

Among other actions, the law also expands eligibility for Pell Grants and increases loan limits on federal student loans.