(EMAILWIRE.COM, March 20, 2008 ) SAN FRANCISCO, Calif – The battered housing market in the United States has gotten some good news from Washington recently. On Tuesday of this week the Federal Reserve cut key interest rates down to 2.25%. This rate cut, and predicted further cuts in the future, may help American home buyers and sellers who want to buy or sell a house, but favorable results for mortgage borrowers are not expected overnight.

Following the rate cut, the Office of Federal Housing Enterprise Oversight (OFHEO) announced on Wednesday that it would ease capital requirements on Fannie Mae (FNM) and Freddie Mac (FRE). By cutting the so-called surplus capital requirement to 20% from 30% the government estimates that this will free up almost $200 billion US for the two companies to purchase more mortgage loans and package them into securities.

The hoped-for outcome of these moves is to give mortgage lenders a way to sell their loans to Fannie Mae and Freddie Mac who will then package them into mortgage backed securities to be sold to investors. Once this has been done, so the theory goes, the lenders will then be able to lend their newly freed up capital to other borrowers such as homeowners and small businesses. Refinancing out of so-called subprime mortgages or other home loans with unfavorable rates or provisions into new loans with more borrower-friendly terms is also a hoped for outcome.

Foreclosure expert and real estate broker Patrick McGilvray, J.D., president of Sacramento-based www.TheHomeBuyingCenter.com, commented “Even though mortgage rates are slightly higher today compared to a month ago the recent actions of the federal government, this week’s news should be good news for homeowners who are looking to sell their houses. Prospective home buyers, who already have great opportunities to buy houses in foreclosure or those taken back by lenders, should begin to see banks become more willing to lend money as the regulatory changes are taken into account by the market.”

Economists, despite the recent government attempts to spur growth, see some downside risks in the Fed’s actions to the strength of the dollar which has weakened substantially compared to foreign currencies over the past five years. Foreign investors can get higher interest rates on their money in Europe and other countries around the world than they can in the US. Despite this, the Federal Reserve in its Tuesday statement indicated that the main impetus for the .75% rate cut was that “the outlook for economic activity has weakened further,” and that financial markets are “under considerable stress.”

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